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Crypto exchange FTX invests with stock exchange IEX to build crypto securities platform

·Senior Reporter
·4 min read

Crypto exchange FTX US is investing an undisclosed sum in the New York-based stock exchange, IEX, in a deal expected to close in May.

The deal allows the two trading firms to establish a more transparent and clear market structure for trading digital asset securities, meaning any crypto assets not already deemed a commodity according to U.S regulators.

“There’s a ton of demand in the United States for a digital asset securities platform and I think there’s an avenue that we see to work with IEX and the SEC on developing one,” Sam Bankman-Fried, founder and chief operating officer of FTX US, as well as its parent company FTX, told Yahoo Finance. “We’re looking to tackle problems in new ways and sometimes that means charting new territory in terms of market structure.”

Open for trading since 2013, IEX was formed off its founders’ distaste for Wall Street tactics such as high-frequency trading and dark pools. The stock exchange was depicted in Michael Lewis’s book, "Flash Boys," which also uses IEX Chief Operating Officer and Cofounder Brad Katsuyama as a central character. More recently, IEX has made efforts to cater towards retail investors, especially those who frequent Reddit.

"There are parts of the equities market that we think poor over into digital assets and then there are parts I think you don't want to replicate. From that perspective, there's a lot of value that can be added from our firms working together,” Katsuyama told Yahoo Finance about the latest deal.

This illustration photo shows a smart phone screen displaying the logo of FTX, the crypto exchange platform, with a screen showing the FTX website in the background in Arlington, Virginia on February 10, 2022. - Sam Bankman-Fried donned a suit and tie this week, abandoning his preferred hoodie and dark T-shirt for a hearing before US Senators.  The lawmakers had summoned the 29-year-old multi-billionaire on Wednesday to discuss the regulation of digital assets in his capacity as co-founder and CEO of the cryptocurrency exchange platform FTX (Photo by OLIVIER DOULIERY / AFP) (Photo by OLIVIER DOULIERY/AFP via Getty Images)
This illustration photo shows a smart phone screen displaying the logo of FTX, the crypto exchange platform, with a screen showing the FTX website in the background in Arlington, Virginia on February 10, 2022. (Photo by OLIVIER DOULIERY/AFP via Getty Images)

After announcing the close of its series C funding round on January 12 of this year, FTX held a $32 billion post-money valuation while FTX US logged its own $8 billion valuation later that month. Since then, its moves to expand have stretched beyond the crypto sector.

The company’s partnerships and investments have included launching a $2 billion venture fund; acquiring the Japanese crypto exchange, Liquid; starting a gaming business; partnering with Kenya-based payments firm, AZA Finance; and expanding into European markets and Australia.

Additionally, social media site StockTwits and stock-trading API company Alpaca both tapped FTX to help the companies offer crypto trading to customers and clients. At the beginning of February, FTX US announced it will soon offer its own form of U.S. regulatory compliant stock trading.

The firm carries a broker-dealer license, but this is its “first real venture in equities market structure,” according to Bankman-Fried.

Cryptocurrency Bitcoin and financial banking market with a growing virtual currency
(Photo: Getty Creative)

This deal follows the White House’s executive order last month to increase regulation of the crypto sector while promising not to tamp down innovation.

The Securities and Exchange Commission (SEC) is also mulling how to further regulate cryptocurrency exchange trading. Last week, it proposed new accounting standards that would have exchanges account for customer funds as liabilities in case of loss. On Monday, SEC Chair Gary Gensler told his audience at University of Pennsylvania Law event that he has asked staff to consider whether cryptocurrency exchanges should be segregated from market making functions.

“Unlike traditional securities exchanges, crypto trading platforms also may act as market makers and thus as principals trading on their own platforms for their own accounts on the other side of their customers,” Gensler wrote in his prepared remarks.

FTX US has also proposed a new model for trading crypto derivatives to the SEC’s sister agency, the Commodities and Futures Trading Commission (CFTC). The proposal, which is currently open to public comment, would use a new format for clearing derivatives orders and automating customer margin calls, which could potentially disintermediate futures brokers who historically carry those risks and responsibilities.

“There’s a lot of ways we can try out new models as limited test cases that I think have some promise for a lot of asset classes,” Bankman-Fried added.

Further details of the partnership are expected after the deal closes in the coming weeks.

The companies said they “plan to introduce an initiative that invites all investors to join the conversation about the future of market structure for digital asset securities,” according to the announcement.

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David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.

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