Markets
Standard Chartered to open crypto spot trading desk – report – Ledger Insights
Bloomberg reported today that Standard Chartered Plc is launching a crypto spot trading desk for Bitcoin and Ether in London, citing sources. The unit will be part of the FX trading desk.
An emailed statement from the bank says it worked with regulators to support the institutional application to trade Bitcoin and Ethereum.
Banks such as Goldman Sachs operate derivatives trading desks, but spot desks are relatively rare at banks.
Basel rules explained
The journalist pointed out that Basel rules for cryptocurrencies making exposure to cryptocurrencies unattractive for banks because they impose a risk weight of 1,250%.
However, we find that this is not necessarily the case. For a small group of the largest cryptocurrencies, some hedging is allowed. In other words, risk weighting applies only to net assets. The rules are stricter than those for most other asset classes. For example, only 65% of the hedge position can be offset, among other restrictions.
One of the reasons the bank works with regulators is that the cryptoasset must meet certain criteria to qualify for coverage and the bank must demonstrate this.
Why now?
The timing can be directly linked to the Basel hedging rules.
A crude summary of the three coverage criteria is as follows:
- an ETF or ETN listed on a regulated exchange dedicated to the crypto-asset
- an average market cap of over $10 billion last year for crypto
- sufficient data on prices, trading volumes and market capitalization.
Crypto ETNs began trading on the London Stock Exchange late last month, meaning the first criterion is likely now met.
Additionally, Basel imposes an aggregate exposure limit, so crypto exposures cannot exceed 1% of Tier 1 capital.
Meanwhile, Standard Chartered already has an OTC crypto trading company. Zodiac Markets and a guard company Zodiac Guard. Both are incorporated in London. His tokenization company Libeara is based in Singapore. In addition, SC Ventures is involved in many other web3 initiatives.