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Targeting the institutional market… direct trading business also under consideration
Overseas virtual asset liquidity provision (LP) and market making (MM) firms are preparing to enter the Korean market, targeting the market after the institutionalization of virtual assets in Korea.
They are considering various strategies, from supplying liquidity for institutional transactions or acting as direct trading operators, to collaborating with Virtual Asset Service Providers (VASPs) in case obtaining a license proves difficult.
According to the virtual asset industry on the 4th, overseas virtual asset-related LPs and MMs such as Flow Traders, Cumberland, and Wintermute are currently discussing collaborations with domestic VASPs.
They have shown interest in entering the Korean market, where the retail investor market has been active, but have not been proactive due to unclear regulations.
However, with the enactment of the Digital Asset Basic Act (Virtual Asset Phase 2 Law) being pushed for the second half of this year, and the phased opening of the institutional market allowing trading for listed corporations and registered professional investment corporations, they are now seeking concrete roles.
An industry official said, "The current market is not good, so it's not easy to enter as a market maker, but everyone wants to play a role in supplying liquidity to the corporate and ETF spot and futures markets. There is also discussion of entering as professional investors and directly trading in the domestic market."
Flow Traders, Cumberland, and Jane Street currently operate corporations or sales offices in Korea, while GSR and Jump Trading are reportedly planning to enter through domestic corporations once the regulatory framework becomes clear.
They seem to be moving busily, considering the domestic situation where there are few suitable companies to act as LPs after the opening of the institutional market.
If large trading orders from corporations are absorbed by the current retail-centric market, it could cause price volatility, except for some exchanges with sufficient liquidity. Even then, it would be difficult to process large volumes at once.
Ultimately, institutional orders are expected to be processed through over-the-counter (OTC) transactions, split into block deals (after-hours large-volume trading) or time-weighted average price (TWAP) methods, similar to overseas markets.
LPs play the role of providing liquidity for such institutional transactions, and with the virtual absence of domestic firms, a land of opportunity is opening up for overseas firms.
Professor Jo Jae-woo of Hansung University said, "LPs have grown overseas, but in Korea, OTC vendors have not been legalized, so the industry has not thrived. Currently, there are no visible entities that can immediately act as LPs."
Furthermore, some, including Flow Traders, are reportedly considering more active measures, such as meeting the requirements for registered professional investment corporations and engaging in on-exchange trading on domestic exchanges.
However, as the requirements for trading businesses and their scope are still unclear, they are keeping their options open for collaboration with VASPs.
A representative of a VASP firm said, "Overseas LP/MMs may play a limited role through domestic intermediary OTC firms. We are discussing ways to collaborate with them."
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