Nymex Veteran Targets Institutions With Cryptocurrency Exchange

The lucrative market for cryptocurrency exchanges may soon have some competition for institutional investors.

J. Robert Collins Jr., the former president of the New York Mercantile Exchange, plans to launch the San Juan Mercantile Exchange in October as a venue for broker dealers and other professional investors to trade digital assets such as Bitcoin and Ripple. The venture is an attempt to bring a level of reliability that the legions of cryptocurrency exchanges have struggled to achieve, Collins said in an interview.

From Coinbase Inc.’s GDAX to Kraken, the biggest venues have suffered crashes during periods of high volume and customers have experienced days-long delays when trying to withdraw or transfer funds. Other exchanges, notably Coincheck Inc., have been hacked. These issues have kept institutions largely on the sidelines of the cryptocurrency market, Collins said.

“From a fiduciary standpoint, there’s almost no one taking chances with existing crypto websites,” he said by phone. “What we want to prepare for and help facilitate is when a really large broker dealer wants to give access to their millions of clients but they want to do it in a safe and sound, secure way, run by professionals.”

The exchange is far from a done deal. Collins, who hasn’t received outside financing for the project, hasn’t finalized an agreement with digital custody providers yet. Exchange members will have to be accredited investors, own a percentage of the exchange and undergo know-your-customer and anti-money-laundering checks, he said.

He’s going after an increasingly profitable part of the financial world, where existing exchanges charge fees that average 0.3 percent and lead to millions of dollars in revenue a day, according to data compiled by Bloomberg. The 10 biggest crypto trading platforms are processing volume of about $200 million to as much as $1.7 billion per day, according to CoinMarketCap.

Bloomberg, CoinMarketCap, exchange websites

Collins’s venture will use proprietary software that can process 1.5 million transactions per second and billions of dollars in volume a day, Collins said. That compares to Binance, the second-largest exchange by trading volume that processes 1.4 million transactions per second, according to its website.

Collins also plans to open a bank, the San Juan Mercantile Bank and Trust, which will hold member deposits in U.S. dollars. Connectivity to the exchange will allow for fast processing of funds, he said.

The bank will be based in San Juan, Puerto Rico, with a license to operate as an international financial entity with banking and trust company powers, and will be regulated by Puerto Rico’s Office of the Commissioner of Financial Institutions. It will also be regulated by the U.S. Department of Treasury’s Financial Crimes Enforcement Network under the Bank Secrecy Act, Collins said.

The Securities and Exchange Commission last week warned that cryptocurrency trading platforms offering digital tokens that can be considered securities should register as an exchange. Collins said his exchange will steer clear of those tokens and offer only digital currencies, which fall under the U.S. Commodity Futures Trading Commission. He plans to headquarter the exchange in Chicago.

Collins was Nymex president from 2001 to 2004 and oversaw the transition from open outcry to electronic trading, creating centralized clearing service ClearPort, and then launching the first day session of electronic trading. He’s seeing a similar shift now.

“The Nymex experience, in terms of having to learn to adapt, has informed me looking at this industry and I see it needs help adapting to what really is this invention centered around blockchain,” he said. “Someone will help it adapt. We think our exchange accelerates that process.”

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