TP ICAP’s crypto heads are targeting tradfi clients as the trading platform nears launch

The FTSE 250-listed firm hopes to carry out its first live trades in the coming months and has already enlisted Fidelity Digital Assets as a custodian.

The launch comes as regulators crack down on crypto. In the US, it has taken the form of enforcement action against native firms such as Coinbase.

In the UK, meanwhile, the government is drafting a digital asset rulebook that will be largely based on existing rules for traditional financial firms.

As TP ICAP looks forward to a pivotal year for both Fusion Digital Assets and for crypto more generally, Financial news caught up with their joint heads of digital assets, Simon Forster and Duncan Trenholme.

The transcript below has been edited for clarity and brevity.

Why did TP ICAP decide to launch a crypto exchange?

Simon Forster: Fusion Digital Assets is our spot crypto entry point.

Looking at the landscape in 2017, there were a number of exchanges that mainly served retail clients. If we were to see our institutional clients trading spot crypto, they would need some basic infrastructure, which we did not see.

READ Fireblocks is testing crypto technology to help trading firms avoid a new FTX

Fusion’s key principles are the separation of responsibilities between custody and settlement, and trading and execution. We believe the market is now starting to appreciate these concepts.

There is a wider understanding that the retail exchanges that were fit for purpose for retail clients lack the things you need if you are an institutional investor.

Duncan Trenholme: Much of this is about plumbing. We are working towards a wholesale marketplace where many of our customers who have not previously been able to get into crypto can do so.

[Clients] need a manager, they need a place, they need their trading systems and suppliers connected. We put these things together.

It’s been a bumpy ride for crypto. Was the top brass in doubt?

DT: It was in 2019, at the height of the bear market, that we stood before the executive committee. They decided to go on this journey with us and take this medium to long term strategy. It is a testament to their willingness to explore new technology.

SF: We are fortunate that our management understands that these things take time to build.

What about your TP ICAP colleagues – did they think you were crazy?

SF: Not specifically around what we do in crypto!

READ An audience with former Bitstamp CEO Julian Sawyer

[Digital assets] still polarizing opinion. We continue to try to be a resource for people in the firm, whether it’s around native protocols or whether it’s around this shift in market infrastructure and this concept of tokenization that’s becoming increasingly relevant to different parts of our organization. It starts to make our jobs a little easier as the level of understanding increases.

Cryptocrash has come just as you launch Fusion Digital Assets. Has it affected the customer’s trust?

DT: In previous downturn cycles, the asset class was questioned. But the overall feeling we’ve seen this time is just that the industry needs to mature. The service providers must professionalize themselves.

There are investors who have cut their exposure to the asset class until the service providers are fit for purpose. They have said that they need to limit exposure to the asset class because the risks of trading on a centralized exchange are now not just theoretical, they have actually played out in practice.

SF: No particular group of clients has collectively changed their views. There is only a very small percentage of our customer base that is actually active in this area, and an even smaller percentage that is active in the spot market.

Generally, it takes considerable time for the people we deal with to go from an idea to implementation. You are talking about 18 months in some cases. As such, they have a good understanding of what they want to do and how they want to do it, so events [like FTX] do not change their long-term view. It just delineates how they think about implementing those plans.

But the hedge fund community, for example, seems to be mobilizing. It’s going to be an interesting next 12 to 18 months.

What does it take to rebuild trust?

SF: Last year was a watershed. Many of the traditional names have either launched or are in the process of rolling out their solutions for crypto. This gives us a high degree of confidence in the next wave of adoption.

If you are a large traditional customer who wants to allocate a very small, almost insignificant part of your capital to this ecosystem, it is difficult to use a new provider. So you look to your traditional suppliers and wait for them to get going.

READ BNY Mellon’s Custody Chief on How to Serve Crypto Clients When ‘There’s No Rulebook’

Many of these suppliers are people with whom we have established relationships specifically over the last five years, or people with whom we have good relationships as a wider organisation.

We are rolling out this solution with the aim of adding more managers, some of whom will be more familiar names. It puts our customers in a good position, because they have options that are familiar to them, as opposed to just having suppliers they are less familiar with.

Everyone in crypto is talking about the maturing of the market. Do people just jump on the next bandwagon?

SF: There are firms that did very well in the past that are now thinking about how to do well in this new era. People now look to companies that have had a consistent message for the past two to five years. That’s what gives investors comfort that you’re not just trying to be relevant to what’s happened in the last six or 12 months, but that you’ve had a view of where you think this market is going in the next 10 years. It resonates more with clients after the events of 2022.

DT: It’s great to see the crypto community trying to address things like counterparty risk. If they didn’t, you would worry. Ultimately, investors will decide which service providers to use based on what is important to them.

How far away are we from widespread institutional adoption?

DT: We are in the formative stages of a wholesale market.

SF: Many of the key ingredients are either in place or in flight, both on the custody side and on the regulatory side in traditional financial jurisdictions. Now it’s time to connect them together. It’s going to take time.

These things are ice cold when you operate in regulated financial organizations and jurisdictions. But things are much clearer now when it comes to the names we see building out products. From our perspective, we need regulation, and so do our customers.

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To contact the author of this story with feedback or news, email Alex Daniel