Cboe Digital recently unveiled plans to launch trading and clearing in margin futures on Bitcoin and Ether to become the first US regulated crypto native combined exchange and clearinghouse to enable both spot and leveraged derivatives trading on a single platform.
In this week’s In Profile we meet John Palmer, president of Cboe Digital, to learn more about the company’s vision for the crypto market, the intersection of traditional finance (TradFi) and crypto, and the importance of regulation in the crypto industry.
Tell us more about your company and its purpose
Cboe Global Markets acquired ErisX, a native crypto exchange and clearinghouse for spot and US regulated futures, in May 2022 and soon re-branded it to Cboe Digital. Our model has always been to bring the traditional aspects of our US markets to the crypto ecosystem.
Having a clear separation of duties between our exchange and clearinghouse is a key to our success. Our clearinghouse allows us to have best-in-class risk management with transparency while reducing counterparty risk.
Cboe Digital’s spot market supports trading in Bitcoin, Bitcoin Cash, Ether, Litecoin and USDC.
What are some of your recent achievements you’d like to highlight?
Earlier this year, we received approval from the Commodity Futures Trading Commission (CFTC) to provide margin treatment for Bitcoin and Ether futures. Upon the launch of margined BTC and ETH futures on our platform early next year, we will become the first US regulated crypto native exchange and clearinghouse combination platform to offer leveraged derivatives alongside spot products. This is all part of our vision to bring trust and transparency to crypto spot and derivatives markets through an intermediary-inclusive model.
Cboe Digital is also proud to have been built from the ground up with US regulation at the forefront. We worked to obtain money transmitter licences (MTL) on the state level as well as secured a designated contract market (DCM) and derivatives clearing organisation (DCO) on the federal level from the CFTC. We put in the work with our state and federal regulators to build a crypto marketplace that is not only familiar to traders and intermediaries who are already participating in the traditional financial markets, but also transparent and fully compliant with US regulators.
How did you get into the fintech industry?
As part of my studies for a master’s in financial engineering, I wrote a thesis on the impact of technology on equity markets. During my research, I spent a significant amount of time learning about technological advances in trading infrastructure for both markets and participants and how that impacted the markets going forward.
After finishing my degree, I was focused on continuing to work in a field that allowed me to engage with not only the technology, but also the market participants and trading firms to further that knowledge and curiosity. Fintech fit perfectly into that focus, and I started working in sales, implementation, and support for trading firms that were purchasing and deploying trading technology for the purposes of accessing and trading on exchanges like Cboe operates today.
What’s the best thing about working in the fintech industry?
I love to solve puzzles. I think about the challenges we have in financial markets as a big puzzle that we can help solve with technology. That to me is what makes this space exciting.
How have your previous roles influenced your career?
I’ve had the opportunity to see how trading firms and exchanges run from multiple views over the course of my career. Starting with support and operations roles moving to product management positions and then to viewing tasks via a strategic and commercial lens. These experiences collectively have allowed me to not only understand how markets work but also what makes them work. Using that understanding to then think about what problems we should solve and how we should solve them to drive value to customers and shareholders.
Tell us more about the intersection of Tradfi and crypto?
We view TradFi and crypto to be complementary – and the intersection of the two presents tremendous potential to reshape the future of financial markets. The digital assets space continues to evolve, and we see a real opportunity to bring some of the stability and familiarity of traditional markets to crypto.
Cboe Digital has always believed that the rules, regulations and ethics we hold ourselves accountable to as a US regulated exchange are not optional. Now, more than ever, is the time to harness these traditional exchange principles to help legitimise digital assets and regain trust.
Similarly, there is great potential to extend the transparency, efficiency, inclusivity and borderless nature of blockchain technology to TradFi . We believe crypto and its underlying technology are poised to drive the next evolution of the markets, bringing greater transparency and efficiency, and redefining how transactions are conducted and how assets are managed.
What’s the best mistake you’ve ever made?
When I was younger one of my first jobs was to help at a local country store and butcher where I’d spend time stacking fresh cut and packaged meat for sale in a deep freezer. While that gave me an interesting tolerance to colder conditions throughout my life, it also taught me valuable insight to understand not just the purpose of the task, in this case stacking meat for storage and doing so effectively to maximise space, but also what the use of what I was doing after it, ultimately how other employees could identify, access and retrieve the stacked and now frozen meat.
It’s quite funny to think about now in this context. I’ve spent more than my fair share of hours in a freezer re-stacking meat I had already stacked and stored because I stacked it incorrectly or too high, or because others couldn’t identify what it was. Each time I went into the freezer to re-stack, I Iearned a valuable lesson about asking enough questions to understand the full picture of the task and goal. While stacking meat in a freezer is not attributable to what I do today, the lesson has served me well throughout my career.
What has the future got in store for your company?
Following the events in the crypto space last year, Cboe Digital looks to restore investor confidence and faith in the crypto industry. The launch of margin futures will provide investors access to crypto derivatives via the same, trusted mechanism they gain access to other types of derivatives today.
From the beginning, Cboe Digital was developed to include intermediaries and Futures Commission Merchants (FCMs) in our market model. Not only does Cboe Digital honor separation of duties, but also provides customers with familiar infrastructure to trade cryptocurrencies the same way they trade other asset classes.
By offering crypto spot and margined futures on Cboe Digital’s unified trading and clearing platform, customers have access to both in one place maximising collateral efficiencies and reducing counterparty risk. We look forward to bringing the benefits of regulated derivatives to the crypto ecosystem.
What are the next key talking points or challenges for your industry as a whole?
Crypto regulation will remain a major focus for the industry. While there seems to be steps toward regulation, it remains to be seen when and what this will include. Additionally, if the SEC decides to approve crypto ETF products, there will likely be heightened institutional and retail interest in the crypto market. This is truly an exciting time for the industry as interest continues to grow and we gain more clarity on the regulatory environment.
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