This article was originally published by DigFin.
Atom Asset Exchange (AAX), a crypto exchange that operates the matching engine of the London Stock Exchange Group, wants to open shop onshore in jurisdictions ready to license this kind of business, probably starting with Singapore.
Thor Chan, AAX CEO, says the firm hopes to apply for a license in the Lion City by March, as Singapore’s Payment Services Act will be in force by the end of this month.
Among other things, the legislation introduces a licensing framework for payment services that includes digital token issuance and electronic money (e.g. closed-loop corporate wallets). The combination of digital tokens and e-money opens new worlds for crypto exchanges, putting Singapore at the forefront of regulating blockchain-based finance.
HFT for crypto
AAX is domiciled in Malta but Chan and his team primarily operate out of Hong Kong. It is unusual that it is using LSEG technology designed for low-latency equities trading. AAX intends to use this to win over institutional investors, particularly high-frequency trade shops that have become a vital part of crypto trading.
That’s the world from which Chan emerged. He was previously deputy COO at FDT, a Hong Kong-licensed broker privately owned by Ma Weihua, former chairman of China Merchants Bank. There Chan built the trading architecture to support fast, voluminous trading in Asian equities. The firm began trading crypto in 2016, following a market crash in China A shares and the beginning of a bitcoin-led boom.
He left in 2018 to lead AAX with a mandate to bring low-latency matching to the crypto world, and today Chan boasts AAX – thanks to the LSEG tech – trades tokens ten times the pace of rival exchanges such as Binance or Huobi.
The matching engine, branded Millennium Exchange, can process 100,000 transactions a second as fast as 99 microseconds. (A microsecond is one-millionth of a second.) AAX is also the first to put the LSEG engine on the cloud, using AWS, which it hopes will let it easily extend trading to new jurisdictions.
AAX is the first crypto firm to be admitted to LSEG’s partner network, which includes over 300 members from the classic world of finance. AAX is already using this entrée to build relationships with such firms.
“We offer institutions standard, familiar connectivity,” Chan said. “If you trade equities on the London Stock Exchange, you can get our crypto prices and matching engine.” LSEG’s engine is branded Millennium Exchange.
This is done either via FIX – the messaging protocol used to send securities trade orders – or through direct market access. DMA is an equities term; the crypto-tech jargon is via API, specifically “web-socket API” which means it’s always turned on. (“Restful” APIs need to be switched on, which may work for making corporate payments, for example, but not for the 24/7 world of trading crypto.)
The upshot to these technical matters is that a trading desk using FIX can communicate with any exchange, but in crypto, every broker-to-venue relationship is bilateral, which makes connectivity an expensive mess. Chan hopes that using a FIX-ready, institutionally recognized matching engine will give AAX a leg up.
Aiming to win trust
Like others in this emerging space, AAX is also trying to win institutional trust. It wants to build in surveillance and other measures required of a licensed venue and broker. It is even a customer of Refinitiv’s WorldCheck – a very un-fintechy KYC service used by banks and other crusty institutions. It has also employed cloak-and-dagger firm Kroll Associates to set up a cybersecurity and personel-management framework. (Chan says the company also relies on blockchain analytics to check where peoples’ tokens have been.)
There’s a method in the madness: winning licenses for as broad a clientele as possible.
“We’re excited about Singapore’s regulatory framework,” Chan said, which will enable some level of retail participation – key to making crypto go mainstream. He says other jurisdictions such as Korea may follow suit. AAX intends to gain multiple operating licenses, to give it global scale against a number of likeminded exchanges-cum-brokers.
Other jurisdictions such as Hong Kong and Switzerland continue to restrict regulated crypto activity to accredited investors, which is to say, to rich people and corporations. AAX is being designed to provide users with spot trading among cryptocurrencies, futures contracts on five major coins, and OTC services, which it crypto parlance means fiat-to-crypto ramps. More derivative products are in the pipeline.