Crypto exchange backed by Citadel Securities, Fidelity, Schwab starts up

A new crypto exchange backed by firms including Citadel Securities, Fidelity Digital Assets and Charles Schwab Corp. said it’s gone live, a move that could reshape the digital-asset landscape amid heightened U.S. scrutiny of the sector.

EDX Markets, an institutional-only exchange announced in September 2022, will offer trading in four cryptocurrencies: bitcoin, ethereum, litecoin and bitcoin cash. Unlike existing crypto platforms such as Coinbase Global Inc. and Binance Holdings Ltd., it offers a “noncustodial” model, meaning that it doesn’t hold clients’ digital assets during trading. Instead, EDX is working with a third-party custodian, according to Chief Executive Officer Jamil Nazarali.

An expectation among regulators that crypto exchanges should be separated from broker-dealer functions, similar to the structure of traditional financial markets, will create opportunities for EDX, Nazarali said.

“We believe crypto is here to stay, but for it to evolve as an asset class it needs to adopt the rules and investor protections that exist in traditional finance,” Nazarali said in an interview. “The message we’ve got from our investors is that this creates an even bigger space for us.”

Already backed by companies including Paradigm, Sequoia Capital and Virtu Financial Inc., EDX raised new funding through additional investors including Miami International Holdings, GTS, GSR Markets, and HRT Technology. It plans to launch EDX Clearing to settle trades later this year.

The Securities and Exchange Commission recently widened its crackdown on the crypto industry through lawsuits against two of the biggest firms, Binance and Coinbase, alleging that they acted as unregistered securities exchanges, broker-dealers and clearinghouses. The firms have denied the allegations.

SEC Chair Gary Gensler has long criticized existing crypto platforms for failing to separate different parts of their businesses, such as custody, market-making and trading, which could result in conflicts of interests.

Institutional interest in crypto investing has waned after the industry went through a market crash and high-profile firms including FTX collapsed last year. Still, some traditional financial institutions have been laying the groundwork to participate in the crypto markets. BlackRock Inc., the world’s largest asset manager, filed last week to launch a spot bitcoin exchange-traded fund.