Fidelity Taps ErisX Exchange to Boost Crypto Trading Liquidity

Fidelity Digital Asset (FDA) is signing on as a member of ErisX’s clearinghouse, taking advantage of its central limit order book to provide better liquidity for buy and sell orders.

The companies announced the move Thursday, saying it makes ErisX’s spot market available to FDA’s customers. ErisX is the first exchange FDA has onboarded.

Terrence Dempsey, FDA’s head of product, told CoinDesk that ErisX’s regulatory compliance, counterparty risk analysis and existing tools made the platform attractive for his company’s customers.

“We have an execution platform that is connected to our custody offering that offers two things,” he said. “One [is] a matching engine, so we'll look to cross client trades and if we can't ... we go out to a network of venues, or liquidity providers as we call them, that we can actually go and execute with.”

ErisX CEO Thomas Chippas told CoinDesk the signing is “a great validation of what we’ve been working on for so long, which is to get these sorts of household institutional intermediary names into our market.”

One of the company’s goals is to continue bringing traditional intermediaries into the crypto space, though he noted Fidelity Digital Assets in particular had been building out its crypto efforts, which include custody and execution services, for some time. 

Thursday’s news marks an expansion of a longstanding relationship between Fidelity and ErisX: Fidelity was one of the exchange’s investors back in December 2018. 

“A big investment from a household name in financial services ... is in and of itself a big deal, but the fact that they're now reaching out and connecting out to a market like ours I think validates the central limit order book concept,” Chippas said.

The advantage of a central limit order book is that all parties – meaning clearinghouse participants – have access to the same liquidity pool, Chippas said. 

“They all get access to the same opportunity to to get the best possible price and I think that's what's attractive,” he said. 

OTC desks might massage a price up when connecting a buyer and a seller to maximize their own profit, but this is not possible on ErisX’s system, he said. 

Historically FDA has been working with a network of Over-The-Counter (OTC) desks, Dempsey said, but it’s “really helpful” to identify the liquidity pool to which the asset manager’s crypto custodian has access.

“It differentiates the type of liquidity that we'd be able to offer back to a client so there's no change from a client perspective, other than we think having transparent markets that we could trade through via ErisX could increase better liquidity for the clients,” Dempsey said.

To be clear, ErisX is only providing access to its order book and spot exchange. The actual user interface and experience are still offered by FDA. 

The move potentially comes at a good time for investors. Dempsey said FDA has seen “an uptick in everything across our business” over the past several weeks.

“[We] continue to have discussions with institutions that aren't necessarily invested in the market today, but are seeing more and more interest in doing so and that could be tied to some of the things that are going on the more macro stage,” Dempsey said.

ErisX intends to continue growing its clearinghouse membership, according to Chippas. He declined to say how many members there are currently, though he noted that ErisX has both retail and institutional clients. He named TD Ameritrade and TradeStation as two of these institutions.

Nor does Thursday’s move reflect any concerns on ErisX’s equally long-standing relationship with TD Ameritrade, he said.

“TD Ameritrade as you know is being acquired by Charles Schwab and when you get involved in big M&A that tends to consume 100 percent of management attention and just slow things down,” Chippas said. He expects to continue working with the broker in future.

Chippas also expects institutions – seen on again and off again as the potential savior to the crypto markets – to slowly onboard crypto. 

“I think ... expectations are that everything happens instantaneously ... [but] there’s going to be all sorts of development and some of these things take time,” he said. 

The fact that Fidelity’s customer trades will now occur on a regulated and surveilled order book should build confidence for other entities, he said.

“It’s significant for their customers and for the market ... it’s just happening at institutional traditional speed, which is not native crypto speed and it’s okay. We need people to operate under different time frames,” he said.