- EverMarkets is gunning for the bitcoin derivatives business of CME and Cboe Global Markets.
- The company, which announced Tuesday it is coming out of stealth mode, draws some inspiration from IEX and offers an alternative model to current futures markets.
Michael Lewis’ hit 2014 book, “Flash Boys,” chronicled the journey of Brad Katsuyama and his scrappy group of former traders who set out to prove that Wall Street’s speed-traders were rigging the markets.
Four years after the book’s debut, a group of former Wall Streeters are setting out to do something similar in the nascent market for digital currencies.
Meet EverMarkets: A crypto-company building a trading platform to one day rival the bitcoin futures markets on CME Group and Cboe Global Markets. Trading of other assets, in addition to crypto, will also take place on the platform.The point of the upstart, similarly to Katsuyama’s IEX, is to de-emphasise speed in trading, but in cryptocurrency futures, not stocks.
EverMarkets plans to shake up the market for crypto futures, which is dominated by Wall Street’s high-speed traders, by moving it onto the blockchain and changing the method by which contracts are traded. Instead of the continuous model, in which securities are executed as soon as an order is placed, EverMarkets will run off an auction model. In such a model, trades are all collected and then matched at a specific point in time.
“We aren’t looking to stop the 24/7 trading cycle,” said Mark Pimentel, a former vice president at Knight Capital Group and the brains behind the company’s market structure blueprint. “We can do this every 15 minutes. As such, the individual transactions have more meaning, more purpose. If we do it correctly, it will be a much better market.”
That’s because the company says the model will give people more time to respond to big price moves, which are par for the course in crypto markets. It also makes speed, which Pimentel says big Wall Street firms leverage to dominate crypto futures markets today, less important in the market.
“I have spoken to macro traders, with longer-term holding periods, who want to trade on a platform where they aren’t going to be taken advantage of,” chief executive Jim Bai, a former trader at Citigroup, said.
IEX served as one of the firm’s inspirations, according to Bai.
“We are trying to shake up the existing market, but taking a different market structure approach.”
IEX notably implemented a speed-bump, which slows down the time it can take for high-speed traders to send and receive information from its exchange. The auction model, according to Pimental, is another way to do this.
It’s something folks are calling for elsewhere on Wall Street. CODA Markets, for instance, runs a dark pool that conducts trading via the auction model. In stocks, CEO Don Ross says the model addresses “opportunity costs that noticeably harm investment returns.”
Bai, Pimental, and their other cofounder Craig Austin, formerly of AQR, came up with the idea for EverMarkets a year ago, and put out a white-paper outlining their plans in May. The next step is to get a beta version up and running with selected participants next quarter.
It’s unclear at this point when the platform will be open to US investors, but Bai told Business Insider he expects international traders will be able to make trades by the end of the year. The company plans to engage with the Commodities Futures and Trading Commission to obtain the necessary licenses to offer its services to US-based traders. It would join BitMEX, another derivatives trading platform, which offers trading in crypto futures to non-US customers.
To be sure, it’s no easy feat to break into the exchange business. IEX, which fought tooth and nail to get its exchange licence, only commands 2% of the business for stock trading in the US.