Lars, why did you decide to launch GCEX, and what were your objectives in doing that?
Traditional FX has become saturated and quite frankly boring; let’s be honest, brokers and providers argue over sometimes less than a 1 dollar on a million in commission or spread. What interested me the most in 2017 when I was thinking about the Crypto market and the people was its energy. The technology captured my imagination, hence along with GCEX, we also do substantial business as a bespoke technology provider. We call it “Crypto-in-a-box” and see robust demand for this plug-n-play solution into Crypto. Apart from that fact, it was apparent the Cryptocurrency market was a new frontier suitable for FX veterans. It also quickly became clear that without the traditional mindset, risk management and regulation from existing capital markets, the Crypto market would not reach its full potential. As clever as those are from the new world, and I have several on my team at GCEX, it will not match the years of financial services knowledge and experience that has been accumulated in the past 50 years, not to mention the considerable financial investment by institutions. The purpose was to bridge the gap between two worlds and provide a regulated riskless principal model in FX and Crypto.
Please tell us about your core offerings and the range of integrated financial technology products and services GCEX provides?
GCEX has two high-level offerings: Technology and Brokerage. With our Technology, we provide a complete set of tools and platforms for brokerage and expert knowledge of integrating traditional systems with elements in the Crypto world, such as custody. We combine our Digital Asset registration with the FCA and our full broker licence with the FCA. This means we can deal in numerous instruments, including MiFID, Crypto-assets and their crosses. We do not run any risk; all trades are offset with Tier-1 banks and similar non-bank LPs for Crypto. Our standard offering includes CFDs on Crypto, Spot Crypto (Fiat crosses with those at interbank rates), Commodities, indices and of course, pure FX.
What sort of institutional and professional clients are you currently working with?
GCEX has clients from all over the world. We specialise in B2B, with a diminishing number of high net worth professionals on the side. Typically, we service large brokerages and banks, where we facilitate their technology and/or liquidity. They can also pass down our technology to their clients—a steady flow of clients from traditional FX using connectivity Hubs along with MT4/5, which we naturally also offer. Likewise, we enjoy growing demand from funds in need of liquidity via GCEX in a Prime-broker manner, either via FIX or the newer players using WebSocket. Finally, we have a growing number of Crypto OTC Exchanges wanting to access our liquidity. Most of our clients use GCEX for three main reasons 1) low commission charges on the full suite of FX and Crypto products in one place, 2) We facilitate a full suite of technology across the asset classes 3) GCEX is both a regulated broker and FCA Crypto registered.
What do your own day-to-day responsibilities typically involve?
As CEO and Founder, I naturally must handle the general duties falling within my remit of a regulated firm from an apportionment and oversight point of view. In addition, I must keep the creative hat on as far as the strategy and how to implement it practically within the firm. The learning curve on the technology side in Crypto is no joke, I can confirm, but I am keeping a good pace. And recently we have been facing the positive problem of being inundated with enquiries, so in these Covid times, we experienced a flood of enquiries where clients wanted to go live yesterday. The challenge there is to find out who is ready and who might just be window shopping.
Who are the other key members of your team, and what roles are they playing within the company?
GCEX, like any other business, is defined by its people; these individuals demonstrate our commitment to bridging institutional finance, technology, regulation, and automation. GCEX invited Jesper Petersen to join the Board of Directors as a Non-Executive Director in early 2021. Jesper is a global executive with over 30 years of experience in Corporate and Investment Banking, Trading and Markets, FinTech, and Digital Transformation. He has served on the boards of directors and advisory boards of several Tier 1 Nordic and global financial institutions, bringing expertise in business, governance, and regulation. Henry Price, a long-time advisor to GCEX (since 2018), is on hand to provide compliance and other team members with Crypto-specific oversight. He holds academic positions at Imperial College London and the University of London. His work has appeared in a variety of academic conferences and journals, including The Actuary, e-forex, and a variety of academic conferences and journals. Remonda Kirketerp-Møller, CEO of Munimos, a key Regtech partner, has more than 17 years of legal/regulatory experience in the financial services industry. Remonda is a well-known Fintech, Regtech, and regulatory consultant and speaker. Olga Larsen, our current COO, is indispensable to GCEX; we’ve worked together for over two decades at Saxo, CFH, and now GCEX, and we combine new talent with seasoned executives to achieve the best results. Before joining GCEX as Head of Sales, Søren Bjerregaard was a director at CFH, where he joined in July 2009. He worked as a director for the liquidity provider for 11 years. He also spent nine years as a managing director at Saxo Bank in Denmark from 1999 to 2008, where he met Lars. We are still hiring, with more names announced in the following months.
Deep domain experience is still lacking across the Digital Asset space. Your team, however, has a proven track record across both the FX and Digital Asset marketplaces. What competitive advantages does that give you?
Interestingly, if you look at the space, there are many newcomers and many traditional providers, but very few of the incumbents are on the new FCA temporary Digital Asset register, showing a lack of commitment to enter the Crypto market. So, the incumbents haven’t committed, and the newcomers are both unestablished or unprofitable. GCEX provides fusion FX brokerage services, traditional FX, the bread and butter, and Crypto-assets in a similar manner in fully regulated markets. As a result, we have a unique proposition. Safe but willing to innovate for the benefits of our clients. For example, top tier Crypto liquidity, automation of KYC and onboarding, a portfolio of insured custodians fit for many applications and a technology stack used by some of the largest Crypto brokers out there today.
Has your strategy for rapidly catapulting GCEX into a leading position in the global institutional Digital Brokerage Market been working out as you expected?
I think we started not too late and not too early. Still, the reality is, beginning in 2018 did mean we had to ride out “Crypto winter”, but we had traditional assets to keep the firm ticking over and compelling interest from traditional players even then. Along with COVID-19 pushing forward innovations and Digital Transformation, it really does seem the Adoption of institutions is just around the corner, reflected in the price of Bitcoin and our volumes. And since January, we have been extremely busy with enquiries, new clients and trading.
You have talked about GCEX becoming a “Digital Brokerage 4.0”. What does that mean?
In the “old world”, you open an account with a broker or bank, go through the KYC/AML and then you trade and then it all is tickety boo. In Crypto, there is so much more you can do since it is the combination of DVP (Delivery vs Payment) products like stocks and bonds, but has a technological component to it, such as ERC20 Tokens “stuck” on Ethereum. So suddenly, you can buy this product, and it has an underlying feature. All of such requires that GCEX - and any other brokerage or bank - must have the infrastructure to handle all of this. Take FIAT money like Euros or Dollars. We would always know if the printed money I gave you was wanted from an illicit source like a bank robbery due to the serial number on the notes. However, that is not the case with electronic fiat money, whereas, for Crypto, it is the case due to KYT (Know Your Transaction). In other words, every single transaction arriving at GCEX is being scanned for wallets in which it has historically been. Many people from the old world find this so cumbersome, but it is just a question of systems and procedures to scan things.
In what ways has your long experience in eFX trading technology helped you to develop something completely unique and disruptive with the GCEX product offering to really push the boundaries of trading innovation?
At the end of the day, it is all about understanding the basics. In the Crypto world, it has been to grasp the core components that made FX big and what similar features would pave the way for Crypto. Specific technological standards like FIX API have been adopted for the sake of speed and stability. But most importantly, the critical experience from eFX has been my sales experience: grasping which customers want to start doing business today.
GCEX has made a substantial investment in developing a proprietary technology stack. Why was it important for you to engineer and utilise your own bespoke systems?
It is often the case that not much from Crypto fits the traditional buyer and not much from the traditional space can integrate with the Crypto world. From this perspective, we unify and use what we can, but sometimes you have to roll up your sleeves and build technologies that allow these two groups of people to talk to each other; includes integrations with trading APIs, back-offices and custodians.
GCEX has a very modern technology infrastructure. Where do the benefits of that lie for your own business and the solutions you provide for your clients?
We offer many vital elements for both Crypto and FX brokerage firms; one good example is GCEX’s new premium trader desktop solution which provides secure access for a high-performance cloud-hosted desktop from anywhere in the world. HTML5, Typescript, React, the React Native software stack were all used to create this new trader. Each of the feature tiles is a micro-UI that can be created, deployed, and permissioned independently.
Each can be deployed intraday with zero-downtime releases, removing a significant operational overhead from many platforms, particularly in the age of Cryptocurrency trading 24 hours a day, seven days a week. For resiliency, GCEX makes full use of the cloud, with processes spread through multiple availability zones. The system is built with several levels of redundancy in mind so that it can handle almost any situation. We also use HTTP standards-based security with the strictest settings and zero external/third party links to protect against any external touchpoints—multiple themes, including light and dark mode.
Additionally, we provide complete white-label MT4/5 platforms as well as white label mobile platforms. The comprehensive back-office system supports a wide variety of functions. GCEX Trader is a downloadable trading platform that provides clients with access to multiple asset classes via a unified user interface. At the same time, The GCEX Liquidity Centre is the price engine that brokers use to manage and monitor outbound liquidity and establish internal flow rules.
GCEX Analytics is a system for monitoring client activity that provides real-time access to trade data. You can use various search filters to find trades, view commercial information, and keep track of total client volume, either individually or collectively. Track the volume of each instrument, the total number of trade attempts, and the fill rate for each client. GCEX Radar is a risk management system that provides an in-depth analysis of a client’s credit utilisation in real-time. Examine your clients’ credit utilisation. To facilitate monitoring, clients are organised according to their credit utilisation percentage. Real-time visibility into open positions for clients and View a client’s total profit and loss for each trade.
What steps have you taken to enhance the scope of your services and brokerage capabilities by strategic partnerships with other firms?
We have built integrations for many custodians and liquidity providers already. We can provide the best execution for several products and services, including building out custody and getting interests on deposits. At GCEX, we have clients getting market exposure via spot and via CFD. We also have some who withdraw Crypto or fiat and settle (a.k.a. on and off ramping). Our key partners include Trustology, which offers integration with GCEX offering many coins via a GUI or API integration with our back-office systems. We integrate with many custodians with insurance, regulation and high security.
Alex Batlin from Trustology said, “GCEX is pushing the boundaries of trading innovation, and this strategic partnership with Trustology will not only improve liquidity on exchanges, enabling customers to complete transactions at speed but with added security improvements and access to secure, insured custody.”
We do not self custody our assets, nor do we suggest many of our clients do so. Instead, as part of our broker and Crypto in a box solution, we bring some of the best in the space, such as Fidelity, HEX, Genesis and Trustology. Along with Custodians, we actively pursue relationships with clearing and settlement partners, the most well known one being Bosonic, further to our “Prime Brokerage 2.0” roadmap. We are looking towards implementing additional Settlement Tokens and layer two solutions by 2022 and developing a more open, connected and unified community of users associated with GCEX. Not forgetting our FX roots, we continue to announce partnerships and work with Devexperts, FDCTech, Muinmos, PrimeXM, OneZero, Your Bourse, Gold-i, Celer Tech, Reactive Markets, ACT Forex and many more.
What pain points and areas of concern remain in the Digital Asset markets for many institutional players, and how is GCEX helping them address and overcome these?
Primarily, there is still a lot of regulatory uncertainty and harmonisation between jurisdictions. Although there are registered operators in the space, there are very few “regulated” ones. The FCA has made some progress in coming up with a framework resulting from AMLD5 coming into force in Jan 2021. Although the asset itself remains out of scope, the exchange and custody have come under regulatory scrutiny. MiCA which has been planned since 2018 but may only be adopted by 2024, is an EU attempt at bringing this asset class into a regulatory framework. FATF has introduced terminology such as VASP (Virtual Asset Service Provider), with one focus being “the travel rule” for digital assets, designed to stop transfer between financial institutions anonymously.
Trading natively on the blockchain is out of the question currently and will remain so in the foreseeable future due to a number of scalability, latency and regulatory issues; what I would expect is for brokers to operate mainly in the traditional manner, interfacing with the blockchain only when necessary. So, I see a boom in service providers offering turnkey solutions that allow these assets to be traded alongside a more traditional offering.
Do you expect Cryptos to evolve in similar ways to FX in terms of trade lifecycle automation, or are there likely to be significant differences in how that market reaches electronic maturity?
I think I would argue that Crypto is “over-mature” in the sense that it lacks real-world market experience. One tangible example with smart contracts on ethereum; although possible to automate, some services are completely untenable currently given fees. It is better only to settle on-chain directly when leaving an exchange or venue. In practice, there is a lot to work out simply interacting with and securing assets related to blockchain systems, which is still not a completely closed book.
We have new applications and tokens that still need to be tried and tested at scale. Bitcoin and Ethereum are the most liquid and traded outside the Stablecoins. In my experience, Bitcoin and Ethereum are relatively well understood and traded on many venues, even with some liquid derivatives. However, smaller market cap coins are illiquid and also possibly subject to manipulation. XRP, Ripple, also demonstrated how regulators might step in at any point, causing a halt to trading.
There are also many issues with banking relationships and regulation. Until these have been resolved, it is difficult and relatively expensive to bridge both worlds. Currently, some brokers charge unheard of commissions compared to $10 per million in FX and remain largely unregulated and detached from traditional financial institutions. As regulation goes up, commissions will come down, and more and more traditional players come to trade this asset class.
Where do you envisage the next round of Digital Asset market evolution is likely to be focused?
Once regulated, blockchain could become a significant technology and a paradigm shift. Such applications could be reducing settlement times and counterparty risk via stable coins and settlement ledgers in the world of foreign exchange. Digital assets provide a super audit trail of transparency and provenance and redefine some finance elements themselves.
The next stage will see the main Crypto-asset falling into more regulation frameworks and being understood and traded in the mainstream. After that, there are substantial opportunities for tokenisation of Securities and other assets. The industry may reach a new high when utility is established for many tokens that can persist (whose economic justification makes sense), resulting in more apparent price discovery and price stabilisation. Other areas of DeFi, either as loans, collateral or providing liquidity, may provide yield enhancement in a low to zero interest rate environment.
At present, there is still a lot of “hype” associated with Cryptocurrencies, and it’s sometimes difficult to separate the signal from the noise. What advice would you give to institutional trading firms that may be looking for suitable technology and platform providers to partner with?
When selecting an institutional venue, it is critical to consider the fundamental pricing metrics and the organisation you want to interact holistically, such as legislation, trading infrastructure, payment processes, and reputation. People and previously regulated individuals are ideal places to begin because they are familiar with institutional workflows and existing regulatory structures.
GCEX is governed by the FCA (FRN 828730) and has a team of industry professionals with an average of more than 20 years of experience in the FX industry. This may not be explicitly applicable to Crypto assets.
GCEX has secured temporary registration on the digital asset registry to gain Crypto-specific permissions to address this. Furthermore, we have added Digital Asset specialists such as Henry, who has been a practitioner in the space since the start of his finance career. Aside from the people and the business. It is critical to check the incorporation jurisdictions and regulatory permissions. Other Cryptocurrency exchanges have frequently had difficulty obtaining adequate institutional-grade banking solutions. As a result, they cannot effectively or at all offramp or onramp digital assets, causing significant client anxiety. This usually happens during times of high volatility. GCEX has developed such banking relationships to make it possible, and settlement cycles in USD are available 24 hours a day, seven days a week.
GCEX has created a new modular technology stack that is suitable for both traditional trading and Crypto assets. Many jurisdictions are implementing new Crypto firm registration procedures. In the case of the Financial Conduct Authority (FCA), a shift toward FCA registration was agreed upon, but the asset class as a whole remains largely outside the regulated perimeter. The jurisdiction in which the clients are registered should be recognised and reviewed by compliance. Dealing with counterparties in jurisdictions with strong legal structures and regulators that recognise Crypto assets may be prudent and provide some security.