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First Clearinghouse for Crypto Derivatives Could Be Launched by July

Sead Fadilpašić
Last updated: | 1 min read

The first clearinghouse, or intermediary between buyers and sellers of financial instruments, for cryptocurrency derivatives is called Liquidity Offset Network and should go live by July this year. The venture is looking to increase cryptocurrency trading volumes and reduce trading costs, and should be regulated by the Singapore Monetary Authority in time for the launch, Bloomberg reported.

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In the traditional finance industry, clearing denotes the process of a trade subsequent to matching of the order. Once the buyer and seller agree to the terms of a sale, the clearinghouse serves to “clear” that particular asset before it’s settled, as well as guaranteeing that the deal will be fulfilled. Clearing is the process of updating the accounts of the trading parties and arranging for the transfer of the asset.

The idea for the project came in a meeting in Singapore in December 2018, led by Hoe Lon Leng, former managing director at banking giant Goldman Sachs. Simon Nursey, Leng’s former colleague at other banking giant Standard Chartered who also attended the meeting, said, “We see this as getting the crypto market into shape in order to absorb the entry of traditional finance firms […] We are witnessing the emergence of a new asset class.”

The focus, according to the report, is on bilateral derivatives like over-the-counter (OTC) contracts, in which two parties (or their brokers or bankers as intermediaries) agree on how a particular trade or agreement is to be settled in the future. These contracts are thus not standardized, unlike futures contracts or similar instruments.

The group, dubbed Crypto OTC Roundtable Asia and shortened to CORA, is set to hold another meeting in Chicago in May in order to draw more interest from US-based traders. Rich Rosenblum, co-founder of GSR, an algorithmic trading firm focused on digital assets, believes that this meeting would have more of an impact than the one in Singapore. “Due to weak regulatory oversight in Asia, it will be challenging for initiatives of this kind to have an industry wide impact,” he told Bloomberg. “Similar efforts in the US have the opportunity to work with more progressive regulators, which may be the deciding factor in what sets the global standards and legal framework of the future.”