Unpacking Crypto Options: A New Frontier for Institutional Trading

Transcript

just to give you a little bit of a background of what transpired today's event um obviously we have seen in 2023 a very big interest in crypto derivatives and crypto uh trading volumes for options um and derivatives have been seeing alltime highs so it is a big pleasure for me to welcome two of the leading crypto derivatives exchanges to today CME and derit and also uh a stellar uh crypto trade derivatives trading institutional uh service provider Talos um and without further Ado I would like to let the

panelists introduce themselves uh yeah thank you so much um so my name is Shantal I work at daret we are a leading um crypto derivatives exchange uh specializing in options uh we've got about a 85% market share or close to and I joined darab two years ago from the London Stock Exchange group um I was at a curve Global the derivatives armor the stock exchange and I cover emia sales thanks Shanta Brian would you like to go next thanks my name is Brian Burke I work at CME Group um our uh our cryptocurrency uh Futures and options platform has seen tremendous growth lately uh we're very excited about you

know joining you on the platform today to to discuss and um you know we we've seen a lot of you know growth recently and we think that uh you know being involved in these types of um discussions is uh going to help further Drive growth I completely agree um and Tim yeah uh thank you Nikki thank you for having me as well uh my name is Tim quac I'm the head of sales in Americus for Talos uh prior to TS I spent a decade in traditional Capital markets much like this panel here as well uh trading derivative invol products uh Talis for those that you that are not familiar we're a trading technology company that helps power institutions with full endtoend uh trading life cycle so that's everything from pre-trade

Trade Post trade for digital assets uh cross spot future pers options and effect products we're connected to uh 60 plus venues that's inclusive of exchanges opcs um as well as custody providers um and then you know what we do is essentially we give our clients um access to some of the deepest liquidity um in terms of depth and bread viously to the uh you know esteemed exchanges here that we're speaking with and normalizing that in a single point of entry for them thank you Tim so obviously it is not up for debate that crypto options and crypto derivatives are extremely crucial to the market and uh and even though we say

that we are in a bare Market at the moment um that didn't stop interest um in crypto derivatives um and it's something of a frontier um that will I think bring on mass adoption um but I would like to get your insights uh Brian and and Shantel because you obviously see the volumes you see the market activity uh firsthand could you give us some color on what volumes you've been seeing this year um how have you seen the options Market growing on there bid and CME ladies

first thanks I didn't want to jump in um so we've actually seen really strong growth this year um we're seeing about you know between 30 and 50 corporate on boardings a month um and we're what we're seeing isort of much bigger institutions enter the market um last month at our expiry we reached sort of alltime highs of open interest so our open interest reached 23 billion the last time we were at 23 billion was um two years ago and that was when BTC was double both BTC and eth were like considerably higher so in terms of contracts it's actually doubl the amount of contracts that we're seeing at the moment um also last month our options volumes increased by

68% um so we saw sort of huge growth and that was in the lead up sort of the expectations of the ET the spot ETF being approved um so we saw volatility return um with saw some sort of spikes there so um but also you know earlier on in the year we saw um BTC spikes in March with the banking crisis as well and um with eth we saw um oi and volume spikes around sort of the eth merge and also the upgr upgrade um I think also options what's been interesting to sort of follow as sort of notionally options as percentage of overall derivators has been sort of slowly increasing it's still quite a small sort of percentage but it is steadily increasing and there's some sort of interesting charts that you can see that do that

um and yeah I think kind of the key takeaway is is sort of the the different types of clients so it's much bigger institutions we sort of seeing a much you know before you know two years ago we were onboarding clients now there's very much sort of mutual onboarding so we're having to fill in these sort of horrible due diligence questionnaires um particularly post FDX um you know numerous questions sharing financials and I think the market is is starting to grow up which is which is great for the industry thank you I mean those yours Brian oh no I was just gonna agree with what Shantel said that uh you know the industry is definitely you know uh growing and and evolving right you know what we've seen

on our record place is uh you know I can start with some ADV numbers which is our average daily volume um in October you know across the Futures and options Suite we had 44,000 contracts average daily volume which is up 73% on October versus September um I don't want to bore with too many stats but yeah we've had I mean the overall theme is we've had lots of volume records right you know Bitcoin futures um up 35% month over month you know we've had new uh open interest and volume records um I think the one that catches my eye the most is we had new um record of4 billion dollar um notional outstanding in Bitcoin futures um which is a new record again so you know tremendous growth both Bitcoin and

either Futures and options um we think that you know the area for growth in the future um is is going to be options you know when you think about it's coming from a smaller base versus the Futures uh but we think there's a lot of different participants that can be brought into the marketplace that weren't really there before um you know as far as the client base it's it's getting more diverse and we think there's more opportunity for that to increase uh in the future as well uh when you think about there's not only crypto native players and and prop trading firms but also like larger institutions uh banks that are getting involved and we think that that's you know been a very good um you know differentiate differentiator for us in terms of you know trusted platform um that type of stuff where uh clients are

definitely responding to you know uh margin offsets that we have on our platform uh those types of um you know value propositions are key for our customers that sounds incredible all of these alltime high records um do you see this growth has been linear or is it more exponential over 2022 2023 since you've been in this space from our perspective our um you know our growth is more coming from um volatility so actually we're seeing more volumes when the Market's volatile rather than actually like the underlying currency growth so you know everyone jumps and so actually what's what's been

interesting is we have reached sort of like alltime lows in terms of volatility this year so it's it's been pretty um you know and I think we've all been wasting for catalysts in order to sort of get excited again which is kind of like the spot ETF you know the harving next year could be a catalyst um you know I think in in July last year sorry July this year um eth actually overtook BTC in terms of um overall open interest on derit which was sort of the first time that had happened but now BTC is back and everyone's interested in BTC again and sort of eth has been I think out of our open interest I think I think we've got about six billion is eth and 12 billion is um BTC and you know so you can just see how that's changed from

July so it has been sort of like slow and steady um but obviously you know when there's a catalyst like the banking crisis you know the ETF appr approval that's kind of when we're seeing these sort of big spikes basically that must be so interesting to see all of this data and how the market changes uh Tim so tell us obviously makes it possible for institutions to enter the crypto derivative trading space um it makes it easier it gives it a good user experience but um can you tell us a bit more about what are the key problems that TS is solving for derivatives yeah absolutely um I mean I think if you think about it right um

managing a nonlinear trading book is is very complex um and what we've tried to do is basically provide the same level of quality for you know derivatives trading specifically um that our clients are used to from TR markets right um we we've built or tals as as a as a whole have built high performance trading systems in traditional markets and FX rates equities things like that and most of our team comes from Capital markets right so when we you know form form the company and started thinking about exactly what we're building um we we decided to build it from scratch uh because you know it's there's certain nuances within the crypto Market uh the fact that you can do end to-end workflow and settlement workflows within this um there's a slight missing component of of

a prime right um so there's all these different elements here that you can essentially stick together uh stitch together different types of solutions uh you know some specific problems that we're trying to solve you know is normalizing and unifying that access uh to a larger liquidity pool for our customers uh the ability to kind of manage your risk as well as advanced execution tools that overlay on top of that for institutions that they're very familiar with right so uh for an options book specifically you know the ability to do Dynamic Delta hedging uh for your options exposure as well as kind of multi- likee spread trading calendar spreads future roles things like that and then basis trading which is you know kind of a caveat that a lot of folks are very used to from tral markets trading basis right um also as well as we have

kind of some interesting things along unifying liquidity you know the ability to do uh you know person not fundable but the ability to look through certain liquidity bus to broaden that um as well as you know after that we overlay the workflow right so we overlay the full end to end workflow so this becomes like portfol folio risk management tools pre and post trade tools um that overlay on top of that and and then the most obviously or one of the more important parts is is data right so we allow our customers to have certain parts of data um you know their own data that they would care about there that sounds very sophisticated and complex of course thank you um back to you Brian and Chantel um so you know you

mentioned that you seeing alltime High interest in derivatives um and this is incredible but where do you think we're going next um what do you think that needs to happen to see further growth um where is the market heading you want to go I can take that one first oh sorry I go ahead no no I was saying you go first this time sure sure yeah I mean for us the focus is on building the overall ecosystem and continuing to to do that right when you look at you know a as Tim was mentioning you know ecosystem around products and uh you know and building that type of stuff like that's something we see you

know in traditional Finance markets where you have like say the S&P complex where you have options Futures dividend markets that type of stuff that ecosystem is so key for our customers to have be able to you know hedge very specific pieces of risk I look at things similarly in the crypto Market where you have you know ether Bitcoin uh we have our standard siiz products which are for institutions or mic size products which are for uh retail Traders we have you know Euro denominated futures for those looking to have a you know their margin denominated in different currencies so building up this overall ecosystem is a huge area of growth for us and something that our our clients really value in terms of being able to hedge very specific risks or or different user bases have different needs for products

in different ways so growing that overall ecosystem is very key for us when you think about the different um you know constituents you know in the marketplace again like props Crypton native hedge funds as managers they all have different needs to hedge and when you think about the growth of uh from existing ETFs and other potential ETFs down the road that ecosystem is just going to continue to grow so I think that's that's where we're gonna what really where our focus is and I think that's where we're going to see a lot of growth is the ecosystem just growing with complimentary products yeah I I mean I guess from the crypto native side it's a bit different because I think the it's building the infrastructure that's really important at the moment so you know having

partners like tals entering the space and sort of you know um few years ago there was no trading platforms you know there were hardly any kind of like mpms systems everything was on in a spreadsheet now there's sort of multiple players um you know entering the market and making trading a lot more efficient and a lot better quality um we're doing custody integration so um you know we we've we integrated with copper and Cobo years ago um but nobody really used them now obviously post FDX custody has become a lot more important especially for more of the institutional money coming into space we are integrating with far blocks at the moment we're doing Fidelity um and then now um uh Copper's just recently um announced

partnership with kamu and bitgo which basically creates sort of an FCA regulated custodian that's now able to sort of connect all the different exchanges um also the crypto exchanges are growing up so we're getting our licenses we're with our VAR license in Dubai um and then after that we'll be applying for a number of miid breaker licenses um we've got our ISO 71 we're getting our stock two um continuing to innovate we're getting audited financials um so I think you know just trying to be Innovative and and giving products that are institutionally focused so now we're offering multicast which previously we only offered to people in ld4 we're now offering it to everybody on AWS so it's just being able

to sort of act on speed you know more easily um I think there's still a lack of prime brokers in the space so there are prime Brokers but maybe they don't have the balance sheets that that we kind of need from a crypto side um and then I also think it it's the competition you know I think it's been great I actually wrot in on new about how well CME have been doing because obviously when CME does well it's it's good for darab because it gets hedged on derit so we want the competition to come and we've got sort of this amazing market share which we know we're not going to have forever and don't want to and and even sort of the um the more Crypton native firms who you know buy bit binance oks whove launched their options what we're seeing is that we're

not losing market share to them they're growing a little bit and we're not losing market share but they're activating they've got a massive retail base and they're activating new users who you know then might start trading on derit as well there'll be ar opportunities so I think that that sort of you know we would like the competition to come and sort of help to grow the overall market so it's nice to see kind of competitiv doing what as well that's a nice sentiment Brian how do you feel about this yeah I absolutely agree I use this term all the time growing the pie right that this doesn't have to be you know deran see me we don't have to be you know fighting each other when we you know the customers trading on both platforms is is growing

the pie right and then you see this in other markets as I mentioned before you know referring to you know traditional Finance markets like S&P or NASDAQ right those those different changes competing and having people uh offsetting their risks in different ways with different products that benefits everybody right so um to see you know customers trading on both platforms and using plat different platforms and different exchanges for different needs uh benefits everybody so I can agree more yes I LIF all Bs right so I think what is the saying that we can go further together um I actually don't know what is the right expression but there's something about and that that's actually I I share your sentiments and

it's very nice to hear um that um you believe that competition improves the market and and it benefits everybody um so Tim Shantel mentioned that you know darbid and Tas has been working together um and that there's a lot of work to be done and this is a really fast moving space so uh from your experience what are the major problem Hurd around the crypto derivatives trading infrastructure in general what still need to be done what are you working on yeah it's a it's a it's a good question right so um I think the first thing that comes to mind is reliability and performance right so

reliability of the undering venues reliability of of the technology that you're using for executions and things like that um you know we're connected to both SEI and derit so both obviously fantastic venues um that you know have their their stuff together right um so it's it's really not a big deal if BTC chops around plus or minus half a percent um I think it's just happy days you know when it's low volatility environment um but really what matters is effectively you know how your systems perform in times of volatility specifically um and exactly how you treat those times whether it's like what happens when things disconnect uh you know water protection those are all things that Talis tends to do and we've

seen our fair share obviously volatility right so a qip gets listed the entire Market goes wild right obviously volumes all uprise there um and it's really about you know the reliability of the system um as well as your underlying liquidity providers to be available there so you know our clients or our Collective clients can effectively trade their risk and be able to put on positions or unwind positions depending on whatever they're trying to do um you know so long story short is effectively we've tried to you know we've built the best-in-class connectivity um so to some of the best-in-class venues and for example like we've recently built uh C connectivity which is collocated in DC3 U which is you know not easy to do it's

not an easy kind of lift from our side but we've done it from from previous markets and and we've employed very similar themes in understanding the infrastructure and the nuances there to ensure that we do that correctly uh for our customers and as well as our Tech stack the other side of there is you know ability to provide Advanced execution capabilities across the board with venues you know on top of like derit or if you're going to do as Shantel mentioned exchange Arbitrage so maybe you want to trade something on derit and CM and the ability to trade between those two exchanges in in a normalized fashion so and then and then we overlay the tools on top of that right so Alo execution as I mentioned we do transaction cost analysis which is table stakes in in kind of institutional markets right and then bests so being

able for our customers to see did I actually get best execution VI our smart order router or something like that and to be honest like I said um it is table St for institutions have a Fu shary responsibility um in investor Capital so you know the ability to kind of standardize that for institutions is what they expect especially like what's really important there is when you're moving sizable amounts of risks and sizable positions that's where the reliability happens if you're doing small trades like that's not I want to say that's not important but it's it's more important obviously when larger institutions that are coming in space have very large books uh moving large volumes and being able to do that efficiently uh in a manner incredible let me turn this question back around to Chantel and

Brian from your perspective is there anything from the infrastructure providers that you you would like to see um happening in Q4 next year anything that would make your life easier or would bring us bring in additional um volume and interest um maybe I'll okay um I think yeah I think it's just great that more um more people are entering the space and and kind of trying to build this and and sort of seeing seeing the kind of the opportunities that are at the moment um

so I think particularly seeing and I've definitely started to show more of an interest because people are starting to ask me about what I think about the different platforms so kind of asking people to show me demos and especially on like the wrist side people are doing some like very like good like good stuff and like really amazing analytics and stuff so it's and you know it was just on a spreadsheet you know like even like a year ago like everyone was doing stuff in a spreadsheet which is you know just crazy and I think you know at the moment we work with a partner called Paradigm so um a lot of our block trades so and that again that kind of shows the shift of um you know instit towards of bigger institutions so i' say when I started about 10% of our um options trading was

going through paradigm and now it's um it's about sort of 35% on average and last week it was it was up to sort of 50% so that's basically when people want to trade in size without moving the market so that kind of shows that there's more institutions and there's a lot of competing products that are now kind of entering the market to to sort of compete with Paradigm and and I think that will again be good because Paradigm is very dominant in in that kind of Niche um and I think probably again like I kind of alluded to earlier I think Prime brokers just having that kind of capital efficiency at the moment you have to prefunds um and you know it's like highly Capital inefficient you can't you know it just doesn't work um and so

it'll be nice to sort of you know some of the bigger ones to go live with their options which they haven't done yet um and then potentially see at some point I don't think it'll be anytime soon but you know one of the banks entering the space and and hopefully with kind of the regulation and the growing up at the exchanges at some point that's will happen yeah I'd see it from my perspective that the um you know the amount of innovation in the crypto space is is certainly you know tremendous when you think about um what you know technology-wise some of these you know uh platforms have been able to you know accomplish and and facilitate you know versus you know the the treadly markets it's um it's very different right and I think that like the innovation's been fantastic I think the challenge as an

industry is you know sometimes you can only move as fast as the slowest player right you might need both sides to have the ability to implement some new technology or new uh way to you know facilitate better trading so I think that's you know um that's always a challenge to get some of the the slower players to move and I think that like some of the players that were trying to get into the marketplace like you mentioned Shantel like the banks right you know they have their own infrastructure their own kind of you know technology bureaucracy that needs to be navigated so that's that's going to be a challenge but that's you know that's certainly a priority for us Mak it sure that like those barriers are removed and that those technological advances can be matter by everyone makes sense um so Shanta what are you focusing in in Q4 uh and early

next year at darab bit what what will be your main uh Focus uh so the main focus is yeah the infrastructure building gaining the license um we're hoping to have that end of this year start of next year the core derate team are moving to Dubai um custody integration um and then from a kind of more product perspective cross collateral that's that's going live imminently so you'll be able to at the moment you have to use your BTC to trade BTC and your e to trade East um now we'll be allowing you to use your e to trade your BTC um and you'll be able to cross margin between usdc eth um and tether as well um linear options are starting um at the start of

next year so we are planning on listing three um linear options um so xlp Matic and um oh god I've completely forgotten the last one any XP XP mtic and um anyway so uh yeah so that's that will be kind of like trying to get again trying to activate more of the the retail basically because they'll they're they're kind of more interested in the linear ones um so that's our kind of like and also audited financials um we're hoping to have that done very soon as well aming I mean there's a lot of new product launches which is really exciting and it looks like a very fast moving space um from your From cme's

perspective Brian what will you be focusing on in these coming quarters very focused on bitcoin and ether and growing that current ecosystem you know uh that's that's our I don't want to say singular Focus but very much our Focus right now is making sure that we we feel like we built a good product in terms of the Futures and options and we have a lot of x-rays across the options um in both Bitcoin and ether everything from daily options the nearest week out to out to several months and into you know the second year um so making sure we build the liquidity there we just rolled out a new market maker program we have several market makers uh quoting screens we just tighten requirements and we currently have um margin offsets between Bitcoin and ether um you know between

the crypto currencies themselves but also we have you know margin offsets within uh the ecosystem right so we're trying to you know encourage customers to use the the product in different ways right for instance becoming more Capital efficient by trading vertical option spreads is a way that you can do a directional play so we're trying to get customers to do more of those trades as a way to get more out of what we've already built so I'd say that's that's our primary focus right now but yeah certainly looking at other stuff like can we partner with people you know solve the custody issue offer 247 trading those are all things that we're looking at but in terms of the immediate future the next two quarters we're focused on you know continuing to build on our our strength in um Bitcoin Futures and options

any interesting so throughout this whole conversation obviously institutional adoption has been the key words or one of the key words um maybe we should elaborate on this a little bit more um before I ask my specific question I wanted to let the audience know that um we would welcome some questions from you so please feel free to use the Q&A box um and just drop in some questions for the panel um and then we'll discuss those as well before we move on um because we still have plenty of time so feel free to ask away so back to institutional adoption Tim um how in

your opinion how how is institutional adoption and derivatives are related what is the correlation let's let's dive into that yeah I think um I think it's highly correlated right um institutions will use um options Futures products for prudent risk management um or large institutions like hedge funds or things like that will do a speculation for their Alpha um you know as as Brian kind of alluded to earlier uh Banks and institutions are are slow moving um I like to use they're they're like moving battleships right um and effectively that manner um you know I wouldn't say they wouldn't be successful if they only

did cash instruments um derivatives is a a necessary toolkit um for kind of trading and or risk management tools right um so generally speaking the growth in the derivatives markets and wider adoption will I think be hand inhand with uh with institutional general adoption I know this term has been used God knows how many times of the institutions adop institutional adoption they're coming Etc but um you know I think the ability for for clients to be able to manage their portfolio RIS like I said and providing them with access to different pools of liquidity will you know definitely enable larger adoption of digital assets as a whole um

and you know it's usually for the fact of the ability to express their view in the most Capital efficient manner right whether that be in derivatives or cash instruments some can't trade cash instruments some will only have you know onshore constraints some can trade offshore just depending on where your geography is and things like that that you're operating in and then you know the the other part of that is also thinking about just the customer type or or the client type or institution that it is where hedge funds Alpha generation systematic strategies you know the ability to do something along those lines or like a true asset manager which asset liability management static payoffs for options which is exactly what options are made for right um and then also like whether it be a large portfolio overlay for downside risk

protection you're a long only portfolio or something like that um and then like or you know I won't list every single one but like Venture Capital firms that are doing uncorrelated returns uh to invest in certain derivative products or or digital assets as a whole so um Brian and Chantel I read somewhere um in an article that I think on CME um most of the the volume that was Rel to crypto derivatives um was institutional because the the size of the transaction was the minimum was five ether and or average five ether if it was ether and 15 Bitcoin um do you have any

interesting insights for us on institutional adoption institutional crypto trading and then also at the same time we have a question in the Q&A but I let you answer first yeah um so as far as institutional adoption yeah like our our standard size what we call our standard size contract is uh five Bitcoin right so it's it's a larger size and especially when you're were talking about when Bitcoin was closer to $60,000 um it was it was quite a large amount of size right and uh because of that um it was strictly a a larger player audience right that was kind of the rationale why we launched a a micro Bitcoin future contract uh to make it

more accessible you know notionally to to the more clients but uh we we think that clients definitely value that larger size uh for for moving around large amounts of risk at one time so that's why we have the different two different products right and uh for the Bitcoin it's it's five ether I'm I'm sorry for the Bitcoin future it's five Bitcoin and for The Ether future it's 50 either right so that's why we have those different products um but we definitely see that there's def different players in those two markets for that reason um and uh you know but we definitely see the arbitragers keep those markets you know very closely in line so we think it's important to have both those products U but the margin you know as Tim was talking about is a key thing

that we keep on coming back to with clients and it's it's no different if if you're trading you know a crypto product or any other product that margin is so key to the institutional players to make sure they are as capital efficient as they possibly can be thank you Shanda actually there's a question for you in the Q&A um Selena is asking um why the focus is on Dubai is there a large market for trading um and there bit [Music] offerings um well it's actually just because it's very crypto friendly at the moment so Dubai are um have created like a regulatory regime which is um it covers the whole of crypto it's actually

I think the only one that covers everything within crypto rather than like sub little aspects of it um so a lot of um a lot of exchanges and moving there and getting that as a license as sort of a first step um and there is a lot of I mean I know it's not the same as sort of an FDA license or or a US license but it's definitely you know there's a lot of work that's had to be done in order to get a lot of policies and procedures you know things like s to the iso um the the financials um so it's definitely you know it's it's definitely a lot of work in order to get it um and it a lot of people are moving there it's it's sort of it's trying to attract crypto I think you know a year ago if

someone told me I had to move to Dubai I wouldn't have wanted to go now you know it it seems like there's there's like a huge sort of influx of people so and there's a lot of um there are quite a lot of trading firms setting up there and sort of getting the licenses and things like that um so yeah I think it's a it's there's there's a different event there from what I can work out like every week at the moment which I think is probably a bit too much um but yes it's definitely an interesting an interesting place to be I agree is there a specific are there other geographies that you're focusing on either of you Brian Shantel Tim I was at Hong Kong F week last

weekend there was a battle of regions panel discussion about Singapore versus Hong Kong versus Dubai um which was very interesting so I'm just wondering do you see this or being the the main hotspots at the moment for us it's definitely you know although a lot of our volume currently comes from the United States 35% does come from outside the US right so the uh you know Amia the you know Amia audience um and APAC audience is something that we think we we definitely want to grow more right um you know the fact that you can trade you know around the clock and then have um definite ability ility to

you know HED your risks um you know around the clock is key and we know that you know the uh cryptocurrency you know Marketplace is is certainly Global right so that's something we want to grow even more but we've seen good traction so far with it with 35% outside the US yeah oh sorry you go Tim no I was just saying you know from the Talis point of view given the seat that we sit in I I hope I don't butcher this stat I believe we service clients in 23 24 countries so obviously like crypto being a 247 business and a and a global business effectively uh we've seen a lot of growth like you know we have offices obviously in in Amia as well as

Singapore and things like that but we we've also you know seen a lot of growth coming out of like latam as well so um there's there's definitely beds or hotspots as you kind of like or as we've alluded to here um but it also is one of those things where it sways with the regulatory wind of things right where it gets friendly and then it gets not friendly for certain areas and then you see kind of an influx of of folks either um and I think you know he saw a lot of that during the fpx kind of situation in which then um folks then started thinking about moving offshore and their operations offshore versus onshore and things like that so there's always a constant moving Dynamic um you know it's like crypto kind of works in like dog gear where works really really quickly

and things change quite fast um but you know we we've seen some some good growth especially in y countries uh and things like that yeah I I think there's there's a lot of growth in Asia so how D when derit started it was you know nobody you know nobody was trading we started in 2016 and you know it was it started a spin-off of sort of Dutch market makers who you know started trading options and and the spreads were huge and then in 2019 some kind of institutional money came in and so the spreads got tighter um and then there's there's a big proportion of larger clients from Asia so actually like you look at um CME and just see how well how big a market share they've got in Futures compared to

options and you know it's because a lot of um a lot of the people that trade options aren't connected to the CME right so a lot of our clients aren't trading on the CME whereas on the future side a lot of those big crypto Futures Traders are you know already connected to the CME so it's very hard to it's very easy to switch it on um so I think that's been a lot of a lot of growth initially from Asia but but now you know it's we've got a lot of the traditional guys that are now in crypto so I think you know that's definitely something that's happened the last couple of years so the big options traditional guys now have entered the market they're pretty transparent about the fact that that they're in there um so I think the market has has definitely got a lot more

competitive and it's it's still what I what I think I think some people who were who are originally speaking speaking to darab and interested to start trading I think they're very surprised by how competitive it is so we've got our our sort of top 10 number one is about 5% of the market this is an options and number 10 is about 2% of the market so it's a pretty competitive um it's not like there's one person that's trading like 50% of the volume it is a competitive market and it's it's it's and there are some crypto natives there who I think sometimes the traditional guys really underestimate that's very interesting um any more questions from the audience please feel free to to put in

the Q&A box um but I think I have a question for all three of you and this is more a bit forward looking now um as we're inching closer to the end of the year um I think I would like to ask you um what you're looking forward to most in 2024 in terms of your businesses um in terms of options um and then maybe let's look into the the crypto crystal ball because you have very um deep inside size and you know you see the market moving like what do you think 2024 is bringing uh for crypto derivatives and and crypto options like if you had to make a prediction um what would that

be and maybe we can start with you Shanta ladies first again um I think we're just going to continue to see growth I think that options are hugely underrepresented in crypto it's sort of the moment I think it sort of goes between 1 and 3% of spot um and Equity derivatives it's sort of 35 times that so it's sort of hugely underrepresented and it's never going to get as big as as traditional options because you got the Perpetual so people can use Perpetual contract for certain trading strategies where you know in the traditional world you you would you would use the options but um there's huge sort of space for growth um and I think that you know even with volatility reaching alltime LS this year like we've

still sort of seen good growth and you know I think 30 to 50 corporate on boardings a month this year has been pretty impressive to see um and I think with the licenses we should hopefully see more players enter the space I think with the excitement of the sport ETF again you know that's that's waking up sort of The Wider world of people who've sort of been looking at it also people leave people set up their own um their own firms and things like that um and the barriers entry you know it's not like a CME where the barriers entry is setting up when the CME is quite hard obviously on daret it's it's not it's not quite as you know cost it's it's more cost efficient um so yeah I'm I'm really bullish and you know I'm

expecting to see the competition start to heat up as well which I think will be will be interesting thanks trto yeah from the CME side I I think that's what's encouraging for me is the growth despite low volatility right that you're still seeing whereas like you know volatility in Bitcoin was you know know north of of a 100 you know now it's it's in the looking at the money options it's around 50% you know implied volatility right and it got as low as you know I think believe the 30s recently so despite that lower volatility right we're seeing growth and that's that's very encouraging for me um I think you know we're we're really in the early Innings here you know we're excited to continue in developing the the Futures and option um Market here um

you know clients value that for managing risk around you know catalysts you know the Bitcoin ETF spot Bitcoin ETF that shant mentioned I think that similar to what I said before is going to grow the overall ecosystem and we're we're excited about it because we think there's going to be a lot more strategies for customers to to trade around that that product um also the crossover from from traditional Finance players you know we have that opportunity a lot where you know let's say a a client is trading you know KN gas or something like that volatility cools off there and uh they're they're interested in looking at crypto right so I think there's a lot of that crossover potential uh that we're seeing on our side for for customers that like are already familiar with our markets and they understand how C group Works uh and

just to make that move over to crypto is very easy for them at that point so we're seeing that and I think that's going to be very exciting going forward thank you Brian I think from uh you know from from the Tallow side um broadly speaking this past year has probably been one of the most challenging years for a lot of companies operating digital assets as a whole right the the the market environment has not been super friendly um but you know we we've spent a lot of time here also you know building and fortifying our existing uh product segment and ability whether that be through m&a or new product development and we focused a lot you know what I think hopefully for 2024 is also just growing The Pie as as we've

all alluded to here um in terms of Talis we have a pretty packed road map which is which is always good right um so over the next few quarters we expect to to release some really sharp tools uh when it comes to derivatives specifically uh I kind of alluded to some of the dynamic Delta hedging kind of capabilities that we can do multi- capabilities around trading options as well as like with have portfolio engineering tools so Factor modeling portfolio optimization things like that that cater a little bit towards the um to the asset manager community of sorts right um we we're also rounding out some of our Treasury and portfolio management capabilities um so those are some exciting things that we're we're kind of working on um the the ball question I'm really glad that

you didn't ask me for like a BTC price prediction because I would not answer that um but I will say um you know I guess I'll categorize it in two different ways so like a nice to have for 2024 would be obviously broader adoption ETF approval I think that's been something that's been really headline driven obviously so you know we shall see but you know there's there's some some optimism there regulatory Clarity out of the US and as well as M Mia uh would be fantastic again nice to have right um and then they have this we we at Talis have like a really unique vantage point of being like kind of an agnostic or neutral counterparty in the ecosystem um we very friendly with LPS the custodians things like that and our customers so you know some of the

conversations with some of the larger traditional institutions that we have um these are conversations we've had we've been having for two years now if not more three years things like that um so we we're in a very fortunate Place uh to be trusted by many of some of our largest institutional clients um for their digital asset strategy so we're really looking forward to kind of moving forward and growing the ecosystem as well as you know with our clients and and and our partners um so yeah thank you um so I think you're all excited about next year which is great we all are I think on the CVS side as well um and I think great things will be coming uh in 2024 for crypto and

blockchain in the meantime we have have two questions from the audience um the first one is from Frank how does the panel feel about the rise of new derivatives trading venues uh who are coming to play soon um and is more fragmentation a good thing for the market adoption who would like to take this question I could talk about the fragmentation I think that like you know if you were to use an extreme example think about like the the cash Equity markets in the United States you know where you have dozens of exchanges you know that that that is an area that I think sometimes people you know uh vent frustration with right but I think there's kind of a sweet spot that I think that we're in right now right

where there's there's enough competition but there's not fragmentation right so I think that the the crypto um Marketplace is in a great spot where there's it's not just arabit it's not just SE me it's it's not just different you know uh liquidity providers right you know there's not just a few there's there's enough where there's diversification of the offering and ways to execute and uh different you know strategies to Edge in different ways but it's not overwhelming where there's you know dozens of exchanges right um that that are getting most of the liquidity right while there are a lot of exchanges I think that it's um it's a lot of the the volume is in is in a few where the customers know where to get sides done if they need to Chantel anything to

add yeah I think uh it's it's an interesting question um you know I think broadly thus far we've we've kept the conversation around very much centralized exchanges um and then I think you know a lens of that was you know is there how do how do we feel about other venues outside of that or decentralized kind of exchanges or things like that um it's a unique value PL prop for our clients right um and it really just depends on on the risk spectrum that they're comfortable to operate in that and I think the real key there is you know the ability to Pro provide infrastructure or an ability to to to provide you know a safe way to interact with those different markets um TS is hopefully doing some of that um

but you know it's some of the nuances to crypto digital assets specific markets um that make it really interesting and you know we hope to bring that um that ability to the market as well you um we have another question from Punit how soon did traditional banks are likely to start custody services to the retail customers it's not necessarily derivatives related but if any of you would like to predict how soon is this going to happen I would say using Tim's analogy of of uh you know some banks being being

battleships you think about the uh uh the back office part of of a of a bank or a large institution I might even be you know like think about more like an oil tanker right that they're going to move even slower a slower moving part of of a slower organization so I think that's going to be I think that's going to continue to be a challenge you know in terms of how long that's going to take I mean I think that we're going to make you know significant progress on that in 2024 but I think that's it's it's not an easy problem to solve because there's a lot of constituents involved and and those back office processes move a little slower than than the the trading part of the of the market yeah I think hit it right on the head there right Legacy systems a lot of

tech debt right so I think generally it it creates a scenario where um there is a lot of red tape for for uh for large Banks um and so it's it's more of a weit and see um I wouldn't give a prediction and say six months from now things are going to be going I would say you know it's it's definitely going to be um a little bit longer but however um most folks are are definitely looking at it right at least from the SE what we've seen I think um most of them are very much so educated and up to speed um I think now not to speak for them but it's more of like thinking about how they they want to interact with the market and at what part of the the life cycle they want to right if it's just the data

side if it's actually the trading Services side if it's the prime side or the custody side so and obviously with that comes with a lot of uh regulation comes with a lot of kind of decisions there so um it's a Evol kind of environment but um they're certainly looking at it yeah and I think it the geographic location is obviously a big driver because each region has different regulation and some are further along in the regulatory space than others so just depends like like we like to say in Switzerland uh the regul the regulation is further ahead um than other regions and we're we tend to be proud of

this so that's great okay um there's one more question that I think we can take um from Chris and this is to Brian so we'll see how we Market the crypto options Bitcoin and ether uh given how low its volume has been well I think at the beginning of the the event we have a lot of highs yeah yeah I mean we've definitely seen a lot of growth lately but I I think that uh yeah to be frank you know we always know that we can do more we want to grow those numbers from from where they are right I think that uh you know um a a challenge is you know getting a lot of our traditional players to to you know uh move over to trading crypto that are

kind of more familiar with other products first right um so I I think that while there's work to be done you got to look at like where we came from and where we are now I mean think about how um long SEI has been in this market marketplace right you know been building this Market since 2016 uh the Bitcoin reference rate you know grown our volumes more than 10 times since launch you know we're established leader in the derivative space you know and this Market didn't even exist 10 years ago but think about you know how um you know with the you know regulations that you know C me is a cftc regulated institution um there's a lot of you know hurdles and regulations and uh a lot of that to navigate and the fact that we you know got in this market

as early as we did and have seen as much growth as we have um you know something we're very proud of you know and I think that uh but it's definitely not job done absolutely like we think that we can we can grow this a lot more uh just about you know up to us to a uh design great products in the first place and then B to Market them effectively but I think that uh something we're we're definitely focused on great well I think um with this I would like to say thank you to all of you and thank you so much for for joining today this discussion and sharing your insights um on behalf of the audience we really appreciate it um and maybe let's do this again in six

months time and let's discuss what are the latest developments and and the new highs and hopefully no lows thank you so much um have a nice day rest of the day have a nice evening um thank you thank you thanks everybody