Liz Coyne


<p>In this video, Blockworks&#8217; &#8220;<a href="https://youtube.com/playlist?list=PLvER9nHSRN3wZX2tI3JrCLOAzMBgUJtBo" target="_blank" rel="noreferrer noopener">Forward Guidance</a>&#8221; podcast host Jack Farley sat down with David Mercer, CEO, LMAX Group, at Blockworks <a href="https://cms.blockworks.co/events/das-london/" target="_blank" rel="noreferrer noopener">Digital Asset Summit in London</a> to talk about the &#8220;three Ts and two Cs&#8221; stopping institutions from moving headlong into digital assets.</p>



<p>Mercer is the CEO of LMAX Group, a global, high-growth financial technology company based in London. A former City banking executive and currency specialist, he joined LMAX Group in 2011 and after a successful management buyout, rapidly built LMAX Group into the leading operator of institutional FX and cryptocurrency exchanges with offices in 11 countries and a global client base.</p>



<p>An outspoken industry commentator, David is a long-term champion of the UK’s fintech sector and passionate about supporting entrepreneurship in the UK.</p>



<p>Watch the full interview below.</p>



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<iframe loading="lazy" title="What&#039;s Stopping the Institutional Market from Entering Digital Assets  | LMAX Group CEO David Mercer" width="1024" height="576" src="https://www.youtube.com/embed/yqeQeT7kkaQ?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
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<p><strong>Get the day’s top crypto news and insights delivered to your inbox every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.</strong></p>



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What’s Stopping Institutions from Moving Headlong into Digital Assets?

Ben Strack

<div id="highlights-block_615f0499f2f6b" class="highlights">
        <ul>
                <li>Asset managers putting pressure on banks to adopt crypto so as to help them enter the space, Mercer says</li>
                <li>Executive calls frictionless capital markets that operate seven days a week “incredible”</li>
            </ul>
    
</div>



<p>Cryptocurrencies will be the predominant assets traded in the decades ahead, LMAX Group CEO David Mercer said during an interview at Blockworks’ Digital Asset Summit last month.</p>



<p>LMAX Group is an independent operator of multiple institutional execution venues for foreign exchange and cryptocurrency trading. The London-based company launched the first physical cryptocurrency exchange dedicated to serving only institutional clients in 2018.</p>



<p>Though access to crypto markets is not ideal right now for many asset managers, the executive noted, 70% of LMAX’s 200 biggest institutional customers said in a survey that these players will be the biggest traders of crypto assets three years from now.</p>



<p>“If the asset managers enter the space with just 5% of their portfolio, the market cap has to be $5trn because there’s $110 trillion of assets under management today,” he explained. “That’s just going to be the case, and probably crypto will grow into being 10% or 20% at that stage that it naturally overtakes commodities.”</p>



<p>Watch the full interview below, and watch all of the panel videos from DAS <a href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/#videoslider0" target="_blank" rel="noreferrer noopener">here</a>.&nbsp;</p>



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<iframe loading="lazy" title="DAS NYC 2021: LMAX Group CEO Says Crypto is the Third Industrial Revolution" width="1024" height="576" src="https://www.youtube.com/embed/A9QUZaoFIXw?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
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<p><strong>Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.</strong></p>



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LMAX Group CEO: Crypto is the Third Industrial Revolution

Brian Nibley

<div id="highlights-block_611a97588d933" class="highlights">
        <ul>
                <li>Institutions need to know they are operating within a compliant system and that their funds are secure. </li>
                <li>Liquidity is important for any trader, both to avoid slippage and ensure trades can be executed in a timely manner</li>
            </ul>
    
</div>



<p>In 2020 and 2021, crypto markets have seen an influx of institutional investors.</p>



<p>An impressive and growing number of money managers, corporations, hedge funds and other institutions have sought an allocation to Bitcoin and other cryptocurrencies.</p>



<p>But accessing this new financial frontier isn’t always easy. Crypto markets generally don’t have the same level of maturity, liquidity or regulation that institutions are accustomed to.</p>



<p>Retail exchanges typically aren’t equipped to provide the kind of trading environment that institutions demand.</p>



<h2 class="wp-block-heading"><strong>Here are five things that institutional investors in cryptocurrency must have.</strong></h2>



<h3 class="wp-block-heading"><strong>A reliable trading platform</strong></h3>



<p>Retail exchanges have a terrible reputation for being reliable during times of high volatility. Name any mainstream crypto exchange and it’s almost guaranteed that they crashed for a period during the last big crypto correction. Many traders lose money when this happens, as they’re unable to sell before prices dip further or buy before prices rebound.</p>



<p>This would be unacceptable to an institutional investor in cryptocurrency.</p>



<p>Institutional-grade exchanges consider 100% uptime to be key to their service offering, ensuring their customers’ trading strategies can be carried out at any time.</p>



<p>“The most important consideration for an institution when choosing a trading venue is trade execution — encompassing consistency of executions and low latency executions,” according to Campbell Millar, chief operating officer at LMAX Group.&nbsp;</p>



<p>In effect, the first question institutions ask is, “Can I always get reliable execution?” he said.</p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="380" height="380" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Campbell-Millar-LMAX.jpg" alt="Campbell Millar, LMAX" class="wp-image-6550" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Campbell-Millar-LMAX.jpg?w=380 380w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Campbell-Millar-LMAX.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Campbell-Millar-LMAX.jpg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Campbell-Millar-LMAX.jpg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Campbell-Millar-LMAX.jpg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Campbell-Millar-LMAX.jpg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Campbell-Millar-LMAX.jpg?w=80 80w" sizes="(max-width: 380px) 100vw, 380px" /><figcaption>Campbell Millar, chief operating officer, LMAX Group</figcaption></figure></div>



<h3 class="wp-block-heading"><strong>Institutional exchange venue controls</strong></h3>



<p>Venue controls are another important part of an institutional-grade trading experience. They reduce opportunities for market manipulators and ensure a level playing field for all market participants.</p>



<p>Venue controls include things like:</p>



<ul class="wp-block-list"><li>Volatility bands</li><li>Order throttle rates</li><li>Clip size bands and limits</li><li>Surveillance controls and alerts</li></ul>



<p>Venue controls are also implemented rigorously on LMAX Digital, as Millar described:</p>



<p>“We have a number of controls designed to create an orderly market. These include volatility bands, order throttle rates, and more traditional risk controls such as working order and clip size limits,” he said.</p>



<p>In addition, <a href="https://www.lmaxdigital.com/overview?utm_source=BWG&amp;utm_medium=article&amp;utm_content=sponsored&amp;utm_campaign=aug2021" target="_blank" rel="noreferrer noopener">LMAX Digital </a>has surveillance alerts that trigger, for example, when a customer’s trading pattern appears to be feigning interest in an attempt to try and move the market, a potential indication of spoofing, or wash trade alerts where simultaneous buy and sell orders are entered by a client where there’s no logical reason for those trades.</p>



<h3 class="wp-block-heading"><strong>Depth of liquidity</strong></h3>



<p>Liquidity is important for any trader, both to avoid slippage and ensure trades can be executed in a timely manner.</p>



<p>Crypto markets trade thinly compared to traditional markets in foreign exchange, equities or derivatives.</p>



<p>Exchanges that serve institutions must provide sufficient liquidity for large orders and high trading volumes.</p>



<h3 class="wp-block-heading"><strong>Regulatory compliance and secure custodial solutions</strong></h3>



<p>Institutions need to know they are operating within a compliant system and that their funds are secure. These might be the biggest concerns of all in the crypto markets, as regulations remain unclear and securing digital assets can be a burden.</p>



<p>An institutional-grade exchange must function under the purview of a specific regulatory framework that institutions can trust.</p>



<p>Ideally, this involves an exchange entity being regulated by an authority that already has digital asset regulations in place.</p>



<p>The latter bullet is key because of Gibraltar’s crypto-specific regulatory framework, according to Millar. “Gibraltar is a British overseas territory that has a specific crypto regulatory framework, so they provide a regulation for operating a digital exchange,” he said. “We are regulated by the Gibraltar authority and the Gibraltar financial service commission. They operate with very similar principles to the UK FCA (Financial Conduct Authority) which we already work under in the wider LMAX Group’s FCA regulated entities.”</p>



<h3 class="wp-block-heading"><strong>Custody</strong></h3>



<p>Institutional investors aren’t going to take ownership of their private keys and hold them on a hardware wallet. Instead, institutions need a robust custody solution they can rely on.</p>



<p><a href="https://www.lmaxdigital.com/overview?utm_source=BWG&amp;utm_medium=link&amp;utm_content=overview&amp;utm_campaign=44317" target="_blank" rel="noreferrer noopener">LMAX</a><a href="https://www.lmaxdigital.com/overview?utm_source=BWG&amp;utm_medium=article&amp;utm_content=sponsored&amp;utm_campaign=aug2021" target="_blank" rel="noreferrer noopener"> </a><a href="https://www.lmaxdigital.com/overview?utm_source=BWG&amp;utm_medium=link&amp;utm_content=overview&amp;utm_campaign=44317" target="_blank" rel="noreferrer noopener">Digital</a> goes to great lengths to keep customer funds secure. In fact, after consulting with several respected experts in the industry, LMAX Group executives determined their best course of action would be to build a new custody solution of their own making.</p>



<p>As Andrew Phillips, chief technology officer at LMAX Group put it: “We concluded that we needed to write [a custody solution] ourselves. So, we’ve written our own. It’s our own technology from the ground up. We’ve built and architected it in such a way that it makes a lot of sense for our primary customer base.”</p>



<p>Because LMAX Digital uses geographical separation in combination with air-gapped multi-signature cold storage wallets, compromising the system would have to involve infiltrating two highly secure locations. “You need to pull off two Ocean’s Elevens in order to actually access those funds,” said Phillips.</p>



<p>LMAX Digital basically takes everything that the LMAX Group has achieved in foreign exchange and adapts it to a digital asset trading platform. There really isn’t another exchange like it on the market for institutional investors in cryptocurrency, added Phillips.</p>



<h3 class="wp-block-heading"><strong>Institutional pricing, access to fiat on-ramps</strong></h3>



<p>In addition to all the above, institutions need to know that their trading platform will provide the following:</p>



<ul class="wp-block-list"><li>Fair competition</li><li>Competitive fees</li><li>Access to fiat on-ramps into crypto assets</li></ul>



<p>Having a level playing field to trade on means competitors won’t have any undue advantage. Low fees make trades more profitable. And moving fiat into crypto is obviously necessary for trading in these markets and can be difficult for those working with large amounts of capital.</p>



<p></p>



<p><em>LMAX Digital meets all the criteria listed above in ways that exceed expectations. To name a few:</em></p>



<ul class="wp-block-list"><li><em>The exchange operates with 100% uptime</em></li><li><em>Venue controls ensure an orderly market</em></li><li><em>The exchange has proven its capability to handle high volumes during times of extreme volatility</em></li><li><em>A custom-built unique custodial solution keeps the majority of funds in deep cold storage</em></li><li><em>Regulated under the authority of the British territory of Gibraltar</em></li></ul>



<p></p>


Top 5 Must-Haves for Institutional Digital Asset Investors

Sam Reynolds

<div id="highlights-block_60f054253aff2" class="highlights">
        <ul>
                <li>LMAX Group has announced an investment round with J.C. Flowers &amp; Co, giving the investor 30% of the company for $300 million at a $1 billion valuation </li>
                <li>LMAX Group CEO said that J.C. Flowers is investing in the cohesion of institutional FX trade and crypto</li>
            </ul>
    
</div>



<p>A few years ago LMAX Group CEO David Mercer knocked on the doors of 34 of the world’s biggest banks to try and get them onboarded to his institutional-grade digital assets trading platform LMAX Digital. <a href="https://cms.blockworks.co/building-the-plumbing-for-institutional-capital-markets/?utm_content=170465284&amp;utm_medium=social&amp;utm_source=twitter&amp;hss_channel=tw-153396300">Back then, they all said ‘not now, David</a>’. Fast forward to today and LMAX Group has closed a round with one of the world’s pre-eminent financial investors valuing the company at $1 billion.</p>



<p>The transaction remains subject to regulatory approval.</p>



<p>According to a press release, J.C. Flowers &amp; Co is set to take a 30% stake in LMAX Group for $300 million in a secondary share sale by LMAX Group employees. LMAX Group says that they will use the fundraise for a global expansion, particularly in the U.S. and Asia. In addition to a digital assets desk, LMAX Group also operates a sizable foreign exchange business.&nbsp;&nbsp;</p>



<p>“J.C. Flowers invested in the business model. The vision we share is that LMAX Group becomes the preeminent player in global capital markets and the market leader of FX and cryptocurrency trading,” Mercer told Blockworks in an interview. “With our technology, we can leverage any asset class in the world. We took it and applied it to crypto right alongside foreign exchange”.</p>



<p>Mercer is quick to point out that LMAX Digital, the crypto desk, with its small group of institutional traders, is second only to Coinbase in volume. <a href="https://investor.coinbase.com/news/news-details/2021/Coinbase-Announces-First-Quarter-2021-Estimated-Results-and-Full-Year-2021-Outlook/default.aspx">Coinbase reports</a> 6.1 million monthly transacting users.</p>



<p>“LMAX Group is an exciting and well-respected company with a leading position in a market with great potential, making it a highly compelling opportunity for our Firm,” Chris Flowers, Managing Director and CEO, J.C. Flowers &amp; Co, said in a release. “The LMAX Group exchange infrastructure offers&nbsp;efficiency and transparency, both of which are in high demand by the growing numbers of institutional&nbsp; participants in foreign exchange and cryptocurrency trading.”</p>



<p>40% of LMAX Digital clients also trade another asset class, Mercer notes, and he said that the company is planning to use the fundraise to further the cohesion of FX and digital assets.&nbsp;</p>



<p>One cohesion of the asset classes will be the expansion of LMAX Group’s FX trading hours to match crypto’s. Before, the company listed its FX products 24 hours a day, 5 days a week. But, it will be expanding them to match crypto’s 24/7/365 market.&nbsp;</p>



<p>“That’s the future. People want to trade 24 hours a day, 7 days a week. We believe LMAX Group will lead the way in this new era of capital markets,” Mercer said. “Otherwise this great technology will just sit in a data center, collecting dust.”</p>
