Today FTX.US announced a strategic investment in IEX, the fifth largest U.S.-based stock exchange operator after the NYSE, Nasdaq, CBOE and MemX, with the deal expected to close next month.
In January, FTX.US raised a $400 million Series A round at an $8 billion valuation. Its larger international affiliate FTX has raised $1.8 billion and was valued at $32 billion at the start of the year.
The two organizations plan to work together to create a market structure for trading digital asset securities. This isn’t the first investment by a crypto firm into a mainstream incumbent, but it is one of the higher profile examples and potentially a trend.
“Investing in IEX created a tremendous opportunity for FTX US,” said Sam Bankman-Fried, CEO of FTX and FTX US. “With this investment, we’re aligned with one of the most trusted and innovative companies in equities markets. I’ve long respected Brad’s vision for IEX to be an exchange that caters to the needs of the investor and treats them fairly – part of the reason why we’ve operated similarly at FTX.”
Additional details about how the companies plan to work together will be shared in the next few weeks.
Regulated digital asset securities
Digital asset securities cover a wide range of assets instead of just tokenized stocks. In particular, the SEC regards many cryptocurrencies as securities. The recent SEC settlement with crypto lender BlockFi could be the first of many others that go down the digital asset securities route. This is where this alliance appears to focus.
“To unlock its full potential, the crypto and digital asset industry needs to engage with regulators and truly scale what has been built,” said Brad Katsuyama, CEO and Co-Founder of IEX.
“From the first conversation with Sam, it was clear to me that FTX and IEX were truly aligned on the future potential for digital assets and the unique roles our firms could play as partners in shaping market structure that benefits the end investor. We both see the regulators as important allies in providing a clear path forward and attaining the highest possible standards for investor protection.”
However, FTX has indicated a preference for being regulated by the CFTC rather than the SEC. In a blog post, FTX set out a desire for a single regulator for both spot and derivative listings, in contrast to the current divide between the SEC and CFTC for securities versus derivatives. However, CFTC Chair Rostin Behnam is also keen to regulate crypto spot and derivatives markets. Last year FTX appointed CFTC Commissioner Mark Wetjen as its Head of Policy and Regulation.
On a related point, FTX.US acquired CFTC regulated derivatives exchange LedgerX last year and now operates a regulated futures exchange in the United States. It wants to be able to clear margined derivatives trades for retail traders without an intermediary, and the CFTC is currently conducting a consultation. In a recent congressional hearing, CFTC chair Rostin Behnam commented how this could be more efficient and less risky, perhaps indicating he may be in favor of giving FTX the green light.
