Fidelity gets competitive leg up in NY State on proposed Schwab/TDA deal


Fidelity Digital Asset Services (FDAS) has announced that New York officials have given it the green light to offer crypto trading services to its clients in the state. FDAS, a subsidiary of Fidelity Investments, has received a “BitLicense”, a coveted legal requirement to do business in the Empire State, from the New York State Department of Financial Services (NYDFS). This hard-to-get permission will enable FDAS to offer storage and other trading related services for its clients that wish to trade Bitcoin or other digital assets.

Forbes commented on how fortunate the Fidelity group was in its deliberations with officials in New York:

The license allows the company to offer its cryptocurrency trading and custody services to companies based in the State, something that has not been easy to do in the past. New York and its notorious BitLicense, the common term used for a business license of virtual currency activities, issued in the State, have caused many crypto-focused businesses to look elsewhere.

FDAS obviously had applied some time ago for this special license, but its acquisition soon followed the announcement of the proposed union of Charles Schwab and TD Ameritrade. The crypto community had viewed that merger with a bit of trepidation, believing that the overly conservative nature of Schwab might prevail over the initial leanings of TD Ameritrade into the crypto arena. These negative emotions, however, soon dissipated with the FDAS news. If anything is to push the Schwab/TDA merger towards the crypto-sphere, it would be overt competitive moves by other industry giants.

The granting of the BitLicense also allowed for FDAS executives to speak to their early plans with Bitcoin and what the market might expect going forward. The Bitcoin faithful to some extent had expected Fidelity to move at a quickened pace to open their internal trading platform up to retail clients that wanted easy access to the Bitcoin market. To date, FDAS has focused almost entirely on institutional clients that had shown interest in Bitcoin. The clients wanted a regulated path, supported by custodial arrangements, which FDAS has provided, but the firm has initially chosen to expand only its OTC desk.

Comments made by Tom Jessop, the President of FDAS to CoinDesk explained how the firm has progressed:

Between launching our trading platform five months ago to year-end, we will have more than doubled the number of liquidity providers. We are primarily focused on OTC liquidity providers. It’s likely we will connect to our first exchange perhaps before year-end.

It has been reported on several occasions over the past few years that institutional investors actually prefer the OTC route for Bitcoin access for a number of reasons. These firms have built relationships of trust with brokers over many years, which have suited their desire for security and for not disrupting financial markets with over sized buy and sell orders. For now, it is anathema for these clients to tiptoe into the global network of crypto exchanges, especially after reported exchange compromises that have resulted in billions of dollars of losses to exchanges and to their clients.

John Todaro, director of research at Tradeblock, explains:

An exchange has more small order activity and is more comprehensive than an OTC desk, which may rely more on relationship driven activity and is mostly used for larger block trades.

As for next steps, Jessop said to CoinDesk:

After FDAS has onboarded New York clients, it plans in the new year to begin onboarding new assets, developing its trading capabilities, scaling its business and pursuing licenses in other states where it is not currently doing business.

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