Interactive Brokers Group (IBKR, after its Nasdaq ticker), an electronic broker for individual and institutional users, now allows professional investors in Hong Kong trade crypto via a partnership announced on Monday, February 13, with OSL.
This is the second market in which IBKR offers crypto: in the US, it can offer crypto trading via Paxos Trust Company, a New York-based broker and custodian.
But in the US, an IBKR customer must already have a Paxos account, whereas in Hong Kong, IBKR is serving as an introducing broker to OSL. The cryptocurrencies are held in custody in cold wallets by OSL, which recognizes IBKR as an omnibus account. IBKR keeps track of its own client’s holdings of crypto.
Hong Kong moves first
“We’d like to do this anywhere we can find licensed partners and a regulatory regime that ensures the safety of the assets,” said David Friedland, head of Asia Pacific at Interactive Brokers. “We’ll role this out anywhere the client protections are in place.”
IBKR applied for a digital asset trading license in Singapore, but he says authorities there have grown cautious in the wake of last year’s crypto blowups, notably the collapse of trading firm and exchange FTX. If the tie-up with OSL is a success, he hopes to use it as a model to show to regulators in other jurisdictions.
Although IBKR caters to retail investors, for now it is limited to offering crypto to professional investors, who own at least HK$8 million (about $1 million) in assets.
But Friedland says there will be a bigger opportunity if Hong Kong expands its license regime for virtual assets to retail investors; the Securities and Futures Commission is now undergoing a public consultation on the subject.
“Initially I thought Hong Kong’s regulators were off the mark,” he said, noting the SFC’s reluctance to extend its protective umbrella to retail investors. “But they listened, and now Hong Kong’s moving faster than others in the region.”
For now, IBKR is offering spot trading on Bitcoin and Ethereum. Friedland says IBKR will consider adding a few more crypto assets that it doesn’t regard as exotic. It also offers eligible investors access to Bitcoin futures contracts traded on CME.
OSL Digital Securities is part of Hong Kong-listed BC Technology Group.
Friedland says investors have expressed interest in both speculating on crypto assets as well as holding them as investments. “It’s liquid and you can make markets in it, and there are trends to follow,” Friendland says. He declined to quantify IBKR client demand, but says, “It’s a hot topic, judging by the calls we’re getting.”
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He predicts introducing brokerage relationships will proliferate. IBKR uses third-party introducing brokers who feed it customers, in return to low-cost access to different products, from equities to forex. With crypto, the shoe is on the other foot, as IB is bringing its clientele to OSL.
“Every broker in Hong Kong will have to offer crypto via OSL, Hashkey, or others,” Friedland says, citing the other exchange with a crypto license from the Hong Kong Securities and Futures Commission.
DBS, which operates a crypto exchange in partnership with Singapore Exchange, will also apply for a license in Hong Kong – another sign that Hong Kong is reclaiming pole position for crypto trading in the region.
Such relationships aren’t exclusive but for now IBKR has no plans to expand its crypto-based relationships. In the long run, though, it is common to use multiple counterparties for the purposes of counterparty risk management, if market volumes justify the time and expense of vetting and onboarding.
“We know the OSL people and how they operate,” Friedland said. “Because they were the first to get a license [as a virtual-asset exchange], they went through an extreme vetting.”
IBKR’s own counterparty assessment focused on best execution and operations, and Friedland says OSL’s traders are able to manage liquidity and maintain tight spreads.
Nonetheless, crypto costs more than equities or FX. IB charges 5 basis points for equity trades but will charge a commission of 0.2 percent to 0.3 percent (20 to 30 basis points) of crypto transactions. Because crypto can be traded fractionally, IB’s minimum trade is only $2.25 per order. It offers crypto with the same interface as its other financial products. However customers cannot withdraw assets in crypto, only in fiat currency.
Friedland acknowledges he is a crypto novice. “As a newbie, I’m impressed,” he said, adding that he just completed his first trade via his own IBKR account. “I made enough to buy myself a beer.”