By Michael J. Casey
Nasdaq OMX Group Inc. has agreed to provide New York-based
startup Noble Markets with core technology to power a new
marketplace aimed at allowing companies and institutional investors
such as hedge funds to trade bitcoin and related digital-currency
assets.
According to a joint statement provided to The Wall Street
Journal, Noble's platform will use Nasdaq's X-stream trading
system, a high-tech system for matching market participants' orders
that is used by more than 30 exchanges and marketplaces worldwide.
Nasdaq will also provide marketing support.
The agreement follows other Wall Street initiatives that could
pave the way for financial institutions to own and trade digital
currencies, which fans say have the potential to make the global
financial system more efficient but which have also been marred by
price fluctuations, investment scams and cybersecurity
concerns.
Recent developments include: the New York Stock Exchange's
investment in bitcoin exchange Coinbase; regulatory approval of
public trading in the Digital Currency Group's Bitcoin Investment
Fund; former J.P. Morgan Chase & Co. executive Blyth Masters'
appointment to a lead new digital-asset settlement service; and
news earlier Monday that former NYSE Chief Executive Duncan
Niederauer will work as an adviser to bitcoin derivatives platform
TeraExchange.
In an interview, Noble Chief Executive John Betts said he
believes Nasdaq's involvement will help dispel investors' concerns
about the risks of trading in digital currencies. "They can say,
'These are sophisticated organizations; they have done their due
diligence, and if it's good enough for them, it's good enough for
us."
Mr. Betts has previously headed the development of electronic
trading platforms at Goldman Sachs, Morgan Stanley and UBS. His
company is backed by venture-capital firms Blockchain Capital of
San Francisco and Tally Capital of Chicago.
In the statement, Lars Ottersgård, Nasdaq's executive vice
president for market technology, said his company was looking
forward to working with Noble's "cutting edge, new endeavor for the
long term in addressing the needs of the digital currency
space."
Bitcoin is the first and best known of a variety of
digital-currency systems that began when the software program
launched in early 2009 by an unidentified person or persons using
the name Satoshi Nakamoto. Managed by a network of thousands of
independent computers that collectively verify and maintain a
public ledger of transactions, these systems allow users to
exchange digital currency and other tokens of value without using
fee-charging intermediaries such as banks.
In its early years, enthusiastic individual investors, who saw
bitcoin as a potential challenger to traditional currencies,
flocked to largely unregulated, online exchanges and bid its price
up to a peak above $1,100 in late November 2013. But in 2014, as
regulators started drafting rules covering bitcoin and negative
headlines linked it to illicit drug sales, security breaches and
the collapse of Tokyo-based exchange Mt. Gox, the price fell
dramatically. It now trades at around $265.
Mr. Betts's firm and others responded to those events by
building more sophisticated trading infrastructure that could help
instill more confidence in bitcoin and meet the stringent
compliance demands of large, regulated financial institutions.
Despite the negative headlines surrounding bitcoin, these new
entrepreneurs maintain there is considerable interest in it among
hedge funds and other institutional investors, participants whose
deep pockets could help bring some stability to bitcoin's volatile
price. Wall Street, they say, is warming to the idea that the
technology behind bitcoin, if not the currency itself, could slash
costs from the global financial system.
Unlike pioneering offshore websites such as Mt. Gox, which
pooled funds from retail investors into common accounts with
minimal disclosure, Noble's system will be limited to corporate and
institutional investors whose funds will be placed in transparent,
segregated accounts safeguarded by third-party institutions, Mr.
Betts said. Settlement and clearing will occur through a
sophisticated, proprietary model that includes real-time
reconciliation of account balances, he added.
"There is a lot of demand" for digital currency trading from
institutions, he said, noting that his early conversations with
investors involved a lot of "What is bitcoin?" questions, whereas
now he hears, "Bitcoin is interesting, but where can we trade?'" He
added, "A lot of them just couldn't do business with the existing
exchanges. But we are a team of investment veterans. We speak their
language."
Write to Michael J. Casey at michael.j.casey@wsj.com
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