The race to be Europe’s first cryptocurrency MTF

Despite a lack of regulations around digital assets, cryptocurrency exchanges are setting their sights on becoming regulated multilateral trading facilities to capture the interest of institutional investors.

The Financial Conduct Authority (FCA) said it has received just one application from a cryptocurrency exchange looking to register as the first crypto multilateral trading facility (MTF) under MiFID II.

The FCA responded to a freedom of information request from The TRADE Crypto confirming that of the 18 applications it has received for MTFs, one is a cryptocurrency exchange.

An MTF is an approved trading venue operated by an investment firm or market operator, and would add validity to any cryptocurrency exchange given the lack of regulatory clarity around the trading of digital assets.

While many cryptocurrency exchanges are launching with institutional investors in mind, operating under a fully-regulated MiFID II framework would be a major breakthrough for any aspiring venue.

“Depending on their business objectives, crypto firms looking to act in this space will be considering MTF licenses as a way of operating within the boundaries of existing regulation and thereby helping to legitimise their offering,” said Graham Rodford, CEO of institutional-grade crypto exchange, Archax.

Speaking to The TRADE Crypto in June, trading venue said it was aiming to become the first cryptocurrency MTF later this summer after applying to the Financial Market Authority in Liechtenstein.

The venue’s CEO said they were also in conversation with the FCA, but had not received an official response.

In May, LMAX entered the crypto world with institutional digital asset exchange which is said would operate under similar rules and governance of the LMAX Exchange multilateral facility (MTF). An LMAX spokesperson said it had not applied for an MTF as “the physical crypto currencies are not considered a financial instrument and are not regulated by the FCA.”

Elsewhere, the Gibraltar Blockchain Exchange (GBX), an institutional-grade token sale platform and digital asset exchange, operates as a subsidiary of the Gibraltar Stock Exchange which is a self-regulated MTF under MiFID II.

In the US, Coinbase gained an alternative trading system (ATS) license – which is the equivalent of an MTF – in a bid to become a regulated broker-dealer, for which it says it is “on track” to become. This would allow the exchange to offer blockchain-based securities, under the oversight of the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

In a blog on Lykke, the cryptocurrency exchange said its chief business development officer Demetrios Zamboglou was overseeing an MTF application with the FCA, though the website still lists its status as ‘pending regulatory approval’.

Ultimately, the FCA and its European counterparts will likely need to decide their own regulatory stance on cryptocurrencies before approving an exchange or trading venue as an MTF, however countless discussions The TRADE Crypto has conducted with platforms over the past few months suggest many plan to file an application by the end of the year.