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LabCFTC Releases Smart Contracts Primer

The Commodity Futures Trading Commission’s LabCFTC has released, “A CFTC Primer on Smart Contracts”. The primer is part of LabCFTC’s effort to engage with innovators and market participants on a range of fintech topics, and follows on from a 2017 primer on virtual currencies. 

“Smart contracts are being used to drive further automation in our markets and may have an impact across a range of economic activities,” says LabCFTC director Daniel Gorfine. “This primer is focused on explaining smart contracts, exploring how they may impact our markets and highlighting potentially novel risks and challenges.”

The primer sets out to define “smart contracts”, including by exploring their history, characteristics, and potential applications that may eventually impact daily life. The primer explains early self-executing software logic evolving into current smart contract technology – for example, starting with a simple vending machine illustration and then discussing more complex examples, including credit default swap contracts. 

The primer works through a range of operational, technical, cybersecurity, fraud and manipulation, and governance risks and challenges. The primer goes on to speak to the CFTC’s role to protect market users and their funds, consumers, and the public.  

The primer looks at some of the potential use cases for smart contracts in financial market operations. Among these are derivatives, whereby LabCFTC says smart contracts could potentially streamline post-trade processes, real time valuations and margin calls. It also notes that in the realm of trade clearing and settlement, smart contracts could improve efficiency and speed of settlement with less misunderstandings of terms. Additionally, smart contracts could provide greater standardisation and accuracy of data reporting and recordkeeping (e.g., swaps data reporting, regulator nodes for real time risk analysis); as well as automated retention and destruction.

The primer also sets out the potential for such contracts to streamline trading of products subject to oversight by the CFTC (e.g., options, futures, and swaps) and enhance efficiency from pre-trade through post-trade (e.g., price discovery, execution, clearing, and settlement). Among the potential benefits noted are a reduction of duplicative confirmation; a reduction oftrade, capital, and margin risks; automated fulfillment of contracts; enhanced compliance with internal written policies and procedures and with legal obligations and regulatory requirements; as well as Improved regulatory reporting.

DeVere Group Launches Crypto Asset Fund

DeVere Group has founded the DeVere Digital Asset Funds, something it says is “a suite” of digital currency solutions for experienced investors, in association with Dalma Capital Management, a hedge fund manager in the Dubai International Financial Centre.

The launch was announced the day after Bitcoin reached its 10th anniversary.

“Cryptocurrencies are now undeniably part of mainstream finance,” says Nigel Green, founder and CEO of deVere Group. “Their momentum continues to gain traction as both retail and institutional investors increasingly value the need and demand for digital, global currencies in today’s ever-more digitalised and globalised world.

“The crypto market continues to expand considerably, with mass adoption on the horizon,” he continues. “These actively managed cryptocurrency solutions address growing demand by clients who want the potential associated benefits of exposure to the digital currency sector – which typically include portfolio diversification and decent returns – but with reduced volatility for which the market is known.”

The firm says the new fund will invest in a diversified portfolio of digital assets via algorithmic trading over different platforms – including crypto-currency exchanges and OTC markets – as well as arbitrage opportunities.

“Through a ground-breaking algorithmic system, when the price of one asset, for instance Bitcoin or Ethereum, is greater on one platform than on another, the opportunity is identified to generate profit from the difference of price across platforms,” says Green, identifying a basic arbitrage strategy. “These trades allow profits to be generated with little or no directional market risk.”

Zachary Cefaratti, CEO of Dalma Capital adds, “Crypto asset markets abound with durable inefficiencies – creating opportunities for hedge funds to generate uncorrelated excess returns through systematic relative value arbitrage, momentum trading and mean-reversion strategies.

“Crypto Markets have created opportunities that we have not seen in conventional markets for decades. Arbitrage opportunities abound – the prices of the top 25 crypto assets vary across over 400 liquidity venues. The ability to trade long and short allows profit opportunities regardless of market direction.”

NYDFS Approves Coinbase as Qualified Custodian

Coinbase Custody has obtained a license under New York State Banking Law to operate as an independent Qualified Custodian.

It will operate as a Limited Purpose Trust Company chartered by the New York Department of Financial Services (NYDFS).

Coinbase Custody is designed as an institutional-grade service for storing large amounts of cryptocurrency in a secure manner. All assets trusted to Coinbase Custody are stored offline.

“For our customers, operating under a New York State Trust Company is more than just a new license  –  it’s an important piece of regulatory clarity that will allow us to compliantly store more assets and add new features like staking,” says Sam McIngvale, product lead at Coinbase, in an online post announcing the news.

Coinbase Custody Trust Company will operate as a standalone, independently capitalised business to Coinbase Inc,and will be held to the same compliance, security and capital requirements as traditional fiduciary custodial businesses like the Depository Trust Company.

“This means customers can trust that the company has met the rigorous banking standards of NYDFS regarding capitalisation, anti-money laundering procedures, confidentiality, security and storage. The trust charter also designates Coinbase Custody as a fiduciary under New York State Banking Law,” says McIngvale in the online post.

TradAir Targets Crypto Growth Amid Management Changes

TradAir is revamping its business to offer technology solutions for the crypto market, a move that coincides with senior management changes at the firm.

When TradAir co-founder, Illit Geller, stepped down as CEO of the firm in June 2017, co-founder, Ayal Jedeikin stepped in to lead the company until the role of CEO was filled by Viral Tolat in May 2018.

However, Tolat has now vacated this role, resulting in Jedeikin once again taking the reins. Profit & Loss understands that Tolat will remain a “strategic advisor” to the TradAir board.

This change in management, combined with some departures from the London office, such as the firm’s COO, Bob Ejodame, sparked rumours that TradAir was closing its London office and consolidating all its staff in its Tel Aviv headquarters.

However, speaking to Profit & Loss Jedeikin denies that this is the case, stating that the firm is maintaining its sales presence in London, but consolidating the support and operations functions to the Tel Aviv office. He claims that, given Tel Aviv is only two hours ahead of London, it is more efficient to run the support and operations from Tel Aviv and simply work later into the day if necessary.

Another point of speculation has been that TradAir is shifting its focus away from traditional FX and towards the crypto space, something that Jedeikin also says is inaccurate.

“There have been rumours because of management changes, we don’t concern ourselves with them too much as we are far too focused on the business” he explains. “We have indeed pushed into crypto but this doesn’t mean that we’re neglecting the FX business. From a sales, operations and business perspective, there’s no shift. On the development side we are focusing more on crypto because of high client demand while our FX product is already mature”

Jedeikin says that TradAir identified the crypto markets as an opportunity for the firm in early 2017, before the price began spiking dramatically and adds that Tolat was a big proponent of pushing into this new market and so that in this regard there has been no strategic change in direction following his departure.

“The idea is to take professional grade technology and modify it for use in the crypto space,” says Jedeikin. “We see crypto as a high growth area with growing demand from brokers, asset managers and hedge funds for a mature trading solution. While the volumes in the market are down it may be discouraging for the retail side, but on the institutional side we are seeing strong growth.”

For these institutional players, according to Jedeikin, what’s more important than the volatility of cryptoassets is the technology, workflow and infrastructure around the trading of these assets. And this is where he thinks TradAir can help.

“There is a vast amount of startups in this space, we’re not yet at the point of consolidation, but the advantage that we have is that we’re coming from a very stable banking background, because at the end of the day we’re talking about trading. Today, you see all these different exchanges using web services APIs, institutional firms can’t trade like that, they can’t have a chance that the order will get lost if the connection goes down. So there needs to be professional grade technology and that’s what we see ourselves bringing to the table,” says Jedeikin.

ErisX Expands With Three Senior Hires

The recently launched platform for digital asset trading, ErisX, has hired Kelly Brown as chief commercial officer, Liz James as head of clearing and Michael Piracci as senior counsel.

Brown will be tasked with developing an intermediary-friendly approach to developing a safe and liquid digital asset market on the platform. Before joining ErisX, Brown was most recently managing director and head of intermediary, bank and membership segments at CME Group. Brown also held roles in institutional sales at Bank of America and Cargill Investor Services.

James will be in charge of spearheading ErisX’s establishment as a Derivatives Clearing Organization (DCO), something that is currently pending regulatory approval. Prior to this role, James has spent time in operational positions at State Street, Barclays, Chase and Bank of England.

As senior counsel, Piracci will be helping develop one platform for spot and regulated futures contracts in digital assets. He joins from ScotiaBank, where he was director of compliance and his career also includes spells at Barclays; Morgan, Lewis and Bockius; the National Futures Association (NFA); and the Commodity Futures Trading Commission (CFTC).

“Kelly, Liz and Michael will be vital to the growth and development of ErisX and we proudly welcome them to our expanding team of experts,” says CEO Thomas Chippas. “We are confident this group of industry leaders will be the perfect fit to bring our intermediary-friendly vision to fruition and look forward to seeing them succeed in their new roles.”

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