Institutions Expand Digital Asset Offerings
Prometheum has raised funds ahead of the debut of its regulated alternative trading system for digital asset securities while US broker dealer Cowen has announced the public launch of its digital asset division.
Prometheum has raised more than $15m ahead of the launch of Prometheum ATS, which is regulated by both FINRA and the US Securities and Exchange Commission. The current round brings the total investment in Prometheum to more than $42m.
Aaron Kaplan, co-chief executive and co-founder of Prometheum told Markets Media that the ATS will launch in the second quarter of this year, or early in the third quarter, once integration with the custodian is complete.
“In the first year we will be open to institutions and then we will move towards retail investors,” he added.
Prometheum was founded in 2017 by a group of Wall Street attorneys with the aim of allowing digital assets to be traded under existing securities laws. From a compliance perspective, it is much easier for institutions to connect to a regulated venue for trading.
Kaplan continued that comments from Gary Gensler show that the chair of the SEC considers many digitals assets to be securities which have to be traded under existing regulations.
“The writing is on the wall and Gensler is leading the charge,” added Kaplan.
In addition, President Biden issued an executive order on March 9 on the responsible development of digital assets, which will increase institutional interest in the sector according to Kaplan.
“It is the first step in the process of the federal government collectively looking to regulate digital assets and the potential investor implications,” Kaplan added. “We were hoping for a little bit more information on the securities implications.”
Kaplan continued that the government had allowed digital assets to operate in a grey area and the executive order is the official declaration that this is coming to an end
“A lot of digital asset companies will have to change their internal compliance mechanisms,” he said. “However we have assumed from the get go that digital assets would have to meet securities laws.”
If digital assets are deemed to be securities, they have to be held by a custodian that is registered under federal securities laws. Prometheum is also in the process of applying to be authorised as a special purpose broker dealer, allowing it to operate a digital custodian.
“Becoming a special purpose broker dealer moves forward our game plan of launching a complete ecosystem for the issuance, transaction and custody of digital assets,” said Kaplan.
The importance of custody was highlighted by State Street Digital choosing technology from London-based fintech Copper.co in order to develop and launch digital custody, subject to regulatory approval.
Many regulated asset managers can only use a regulated custodian, which has not been available for digital assets.
Swen Werner, head of digital custody for State Street Digital, told Markets Media that the firm aims to build an integrated offering for clients holding both digital and traditional securities. “We want to be able to bridge the old and the new,” he said.
In the UK, TP ICAP is expanding its custody network for digital assets to include BitGo and Komainu, two crypto asset custodians.
TP ICAP’s new Digital Assets Platform, which is awaiting regulatory approval from the Financial Conduct Authority, will feature a wholesale electronic Over The Counter marketplace for spot crypto asset trading and provide straight through processing and payment netting services for executed trades into a network of digital asset custodians. Hudson River Trading, Susquehanna, Flow Traders, Jane Street and Virtu Financial will be market makers on the new platform.
Cowen has announced the public launch of its digital asset division, led by Drew Forman.
Dan Charney, co-president of Cowen and Company, said in a statement: “We are very pleased to publicly announce Cowen Digital, which has been trading crypto on behalf of our clients for several months. In conjunction with our integrated partners Standard Custody and prime brokerage solutions provider, Digital Prime Technologies, Cowen Digital provides our institutional client base with the same dedicated level of thought leadership, product capability, service and professionalism they have come to expect from Cowen.”
Cowen Digital will offer compliant full-service trade execution and custody solutions for institutional clients with custody solutions provided through the firm’s strategic partnership with PolySign’s Standard Custody & Trust.
Standard Custody & Trust.has received a trust company charter from New York State Department of Financial Services, as a regulated qualified custodian of cryptocurrencies and other digital assets.
In May 2021 Cowen made a $25m strategic investment in PolySign when the broker dealer led a $53m first close of the fintech’s Series B fundraising.
PolySign and Cowen said at the time that they would work together to implement a comprehensive digital asset solution for institutional clients and to integrate PolySign’s digital banking technology into Cowen’s sales and trading platform.
Cowen Digital said it will allow institutional investors to access the firm’s aggregated liquidity, use proprietary algorithms, benefit from streamlined operational, capital efficiencies and post-trade reporting, trade directly from Standard Custody’s cold storage solution, avoid pre-funding requirements.
Future functionality for the business will include derivatives and futures, financing solutions as well as institutional DeFi and NFT access.