The NYSE sees an opportunity for traditional structures in the cryptocurrency sector

Lynn Martin, president of NYSE Group and president of ICE Fixed Income & Data Services, said the exchange will continue to look for opportunities to bring traditional structures paired with crypto assets to the forefront as it aims to launch bitcoin index options settled in cash.

Martin spoke at the Consensus 2024 conference in Austin, Texas on a panel on the convergence of cryptocurrencies and traditional finance on May 29.

That day the New York Stock Exchange, part of the Intercontinental Exchange, announced it was launching cash-settled index options that track the CoinDesk Bitcoin Price Index, which it says is the longest-running spot bitcoin index. Last year, ICE Futures Singapore partnered with CoinDesk Indices to upgrade its bitcoin futures contracts.

Lynn Martin, New York Stock Exchange

Martin said the NYSE is working to gain regulatory approval to launch options contracts on Coindesk’s Bitcoin index. He said: “We are incredibly excited.”

Andy Baehr, head of product at CoinDesk Indices, said in a statement: “XBX has provided reliable bitcoin pricing to millions of investors, market participants and bitcoin enthusiasts since 2014. Partnering with the NYSE to launch options on the The XBX Index opens a new chapter in digital assets, putting important and familiar risk management tools into the hands of US and global investors.”

Tom Farley, CEO of regulated digital asset exchange Bullish, which is also the parent of CoinDesk Indices, also spoke on Martin’s panel, and Farley spoke at Consensus 2024.

Farley said the idea for the contract came when David LaValle, global head of ETFs at digital currency asset manager Grayscale Investments, told him the industry needed a cash-settled bitcoin option, which would be new and differentiated.

“In the world of stock options, cash-settled options have a long history of being a very attractive product for clients,” Farley added. “Cash-settled S&P options may be the best-known options product.”

If the options contracts are approved and traded, Farley said it could result in greater overall liquidity for bitcoin, especially in combination with new types of bitcoin ETFs that he expects to see in the near future.

Martin added that options will provide an additional risk management tool, which is attractive to both new entrants and more established institutional names that are becoming involved in bitcoin ETFs.

“This is another evolution in how institutional and retail investors can manage risk in their portfolio, which I think is a good thing,” he said.

Accelerated settlement

On May 28, 2024, the U.S. securities market went from stabilizing two days after a transaction, T+2, to one day after the transaction, T+1. In contrast, on-chain digital assets can be liquidated instantly.

Martin explained that it took the industry a year to go from T+2 to T+1, while it took several years to go from T+3 to T+2.

The technology behind cryptocurrencies, particularly blockchain, is great technology,” he added. “It’s something the industry will continue to look at to see how it can be used to make deals more efficient and transparent.”

He’s optimistic that the industry will eventually move toward more real-time solutions as it upgrades archaic technology, much of which was built in the 1980s. However, the traditional financial ecosystem needs to digest T+1 before moving on to the next innovation.

“I continue to be optimistic about using blockchain technology to make processes more efficient,” Martin said.

Farley, a former NYSE president, agrees that digital assets have the advantage of atomic settlement, but points out that other parts of the ecosystem still lag far behind the speed of connectivity of traditional market centers. For example, trades on cryptocurrency exchanges can take seconds, or at best milliseconds, while stock trading is measured in microseconds.

Martin pointed out that the NYSE’s average response time to execute a trade is 30 microseconds. As a result, the exchange processed three-quarters of a trillion incoming order messages every day.

Furthermore, although instant settlement means there are no failed trades, the process requires much more capital as transactions must be pre-funded. Additionally, crypto venues experience more disruptions than traditional exchanges.

Tom Farley, bullish

“A lot of cryptocurrency venues, including us, are almost moving away from real-time settlement and offering things like deferred settlement because that allows for a lot more liquidity and more active trading,” Farley said.

He went on to say that the current stock market is largely efficient, so blockchain offers greater benefits in other asset classes such as fixed income.

Martin said: “In fixed income, for example in the US municipal bond markets, there is no liquidity. This is probably a better market to start using the technology that underpins the cryptocurrency industry, as it has an inefficient market structure.”

Bitcoin and other digital assets are available for trading 24 hours a day, seven days a week. The NYSE commissioned a survey of 24/7 trading, and Martin said the exchange is still consulting with members.

“The most important thing is that we are looking at various aspects of the ecosystem and in particular the clearing area, to see how it would handle the 24-hour aspect, whether that’s five or seven days a week,” he said. added. “There are a variety of conversations going on.”

Martin was also asked if the NYSE will launch a spot cryptocurrency exchange, and she said this could be an opportunity if there were clear regulatory guidelines.

Crypto ETFs

Martin pointed out that it took six years for the U.S. Securities and Exchange Commission to approve bitcoin ETFs. The SEC recently approved ether ETFs, which Martin said was partly due to the approximately $58 billion invested in bitcoin ETFs since they launched in January 2024, which he described as a huge success.

“The flows are a strong signal that the market is looking for cryptocurrencies in traditional structures,” he added. “We will continue to try to find opportunities to bring traditional structures paired with crypto assets to the forefront.”

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