The owner of Canada's oldest stock exchange, TMX Group Ltd., is launching a cryptocurrency platform that will bring the 166-year-old marketplace into the brave new world for bitcoin and other digital currencies.
TMX subsidiary Shorcan Brokers Ltd. said on Thursday it is building the first exchange-owned brokerage platform for cryptocurrency investors, and plans services that compile data on digital currencies and publish performance benchmarks such as indexes.
"We're looking at a global market that is in its infancy, and as the digital currency network grows and traditional financial institutions want access, we are building a bridge between those two worlds," said Shorcan president Peter Conroy.
The new platform is called Shorcan Digital Currency Network (Shorcan DCN), and is expected to debut in the second quarter of this year. It will initially focus on trading and data in the two most common cryptocurrencies, bitcoin and Ether, a currency generated by the Ethereum technology platform. Mr. Conroy said Shorcan DCN will expand if clients demand additional currencies or services.
The venture's initial goal is to capture 2 to 5 per cent of global over-the-counter (OTC) trading in a market that currently sees anywhere from $4-billion to $9-billion of cryptocurrencies change hands each day, Mr. Conroy said. In comparison, about $4-billion worth of Canadian bonds trade daily at Shorcan, while daily TMX equity trading averages $7-billion.
Shorcan teamed up with Paycase Financial Corp., a Toronto-based cryptocurrency payment company, to build the OTC brokerage. Bank of Montreal is backstopping the business by providing payment and settlement services.
"As the first-ever public crypto brokerage desk by an exchange, this deal represents the true institutionalization of cryptocurrencies as an asset class," said Paycase CEO Joseph Weinberg. "The world has barely begun seeing bitcoin's utility. Bitcoin's true utility will surface as institutional investors can truly incorporate the asset class in their strategies."
TMX dominates trading in Canadian equities, and the company's growth strategy is based in part on expanding into other asset classes, such as derivatives. TMX acquired Shorcan, a fixed-income trading business, in 2006 and subsequently launched platforms that buy and sell energy and private equity holdings; the energy unit was sold last year.
"As new technologies continue to reshape the global financial industry, we continue to explore new ways to evolve our business to address client needs in both traditional and non-traditional markets," said John Lee, the TMX's head of enterprise innovation and product development. Shorcan DCN expects to make money by charging fees on digital currency trading and from selling data and licensing benchmarks. Mr. Lee said: "Shorcan DCN represents a significant step forward in the execution of TMX Group's digital strategy."
U.S. exchanges are also embracing cryptocurrencies as potential sources of revenue. Two exchanges with roots in commodity markets, the Chicago Board Options Exchange and Chicago Mercantile Exchange, launched derivatives in December that are designed to reflect the future price of digital currencies.
Cryptocurrencies emerged in 2009 as technology entrepreneurs adopted digital platforms that created programmable money with no links to governments, central banks or financial institutions. The sector is largely unregulated, and while the value of many digital currencies has soared in recent years, there have been problems with fraud and money laundering.
Bank of Canada Governor Stephen Poloz recently warned investors that bitcoin and other cryptocurrencies are not currencies at all. "The term 'cryptocurrency' is a misnomer – 'crypto,' yes, but 'currency,' no," Mr. Poloz said in a speech. "For something to be considered a currency, it must act as a reliable store of value, and you should be able to spend it easily. These instruments possess neither of these characteristics, so they do not constitute 'money.'"