Toronto Stock Exchange owner TMX Group is weighing a move to become one of the first stock market operators in the world to facilitate crypto trading.

But the proposal, which would let wealth-management professionals enter the crypto market via TMX Group’s platform, has already provoked skepticism from a division of one of the country’s big banks. 

In a consultation paper released July 6, TMX Group argued that Canada’s introduction of crypto ETFs and registered crypto-trading platforms has not been enough to satisfy a “growing demand” for crypto trading in Canada. By allowing Bitcoin and Ether to trade on the TSX Alpha Exchange, a platform that facilitates trading in securities listed on the TSX and TSX Venture Exchange, TMX Group could open the door to traditional finance players who have been reluctant to enter the market in the absence of “a familiar recognized and regulated capital markets ecosystem,” the paper said.

In response to an interview request, TMX Group spokesperson Catherine Kee sent an emailed statement saying the company has collected feedback on the proposal and will “update the market on our plans as appropriate.”

Not all the reactions have been positive.

The July 10 edition of a weekly bulletin from investment bank TD Cowen, part of TD’s securities division, featured the TMX Group proposal as “this week’s sign of the apocalypse.” “Given [2022]’s FTX debacle, there are still industry jitters,” the bulletin said, referring to the spectacular collapse of the crypto-trading giant that resulted in black eyes for institutional investors that piled into the sector during the 2021 bull market, including the Ontario Teachers’ Pension Plan and the Caisse de dépôt et placement du Québec.

If TMX moves ahead with the proposal, it could add to Canada’s track record of innovation in crypto regulation. Canadian regulators approved the world’s first Bitcoin exchange-traded fund from Purpose Investments in February 2021 and blazed a trail with their unique approach to regulating crypto-trading platforms, requiring them to either register as investment dealers or exit the country.

The TMX Group proposal joins other recent evidence that the traditional finance sector is giving the crypto sector another look.

Larry Fink, the chief executive of investing giant BlackRock and a former Bitcoin critic, took both Wall Street and the crypto world by surprise in June by filing an application to launch a spot Bitcoin ETF in the U.S., saying in a subsequent Fox Business interview that digital assets could “revolutionize finance.” In August, a U.S. federal appeals court brought spot Bitcoin ETFs one step closer to reality in that country by ruling that the Securities and Exchange Commission, which has to date denied every application for a crypto ETF it has reviewed, didn’t adequately explain why it denied would-be competitor Grayscale’s application.

Earlier this month, the London Stock Exchange Group proposed offering blockchain-based trading of traditional financial assets. It would become the first major stock exchange to do so.

Meanwhile, in Canada, the Office of the Superintendent of Financial Institutions released draft guidelines in July that could pave the way for banks to offer crypto products. Earlier this month, Visa announced a partnership with Montreal-based fintech Nuvei that lets it settle payments in the U.S. dollar-pegged stablecoin USDC.

Dean Skurka, chief executive of crypto-trading platform Coinsquare parent company WonderFi, told The Logic that trading volume increased 85 per cent at Coinsquare’s institutional over-the-counter trading desk for high-net-worth individuals and corporate clients in the 30 days following BlackRock’s ETF announcement, compared to the previous 30 days. 

“This segment of clientele is becoming more interested or more active in crypto,” Skurka said. “We think a lot of that has to do with the regulatory clarity in the Canadian market, and then you layer on announcements like the Blackrock one.”

While TMX Group has done little to call the public’s attention to its proposal, it has made waves in Canada’s crypto sector.

Didier Lavallée, chief executive of the Calgary-based crypto custodian Tetra Trust, called the TMX Group proposal and the OSFI draft guidelines a “one-two punch” that has changed the tone of talks with potential clients in the traditional finance sector. “I think that’s why my conversations at Tetra are starting to pivot more around the operational framework of how to make this work, as opposed to, ‘Oh, no, we can’t touch this from a risk parameter,’” he said.

Giles Anderson, vice-president of digital asset sales and relationship management at Fidelity Clearing Canada, the proposed custodian and settlement agent for digital assets on the TSX Alpha Exchange, said he believes that if TMX Group builds it, institutional investors will come.

“The combined TMX and Fidelity Canada offering pretty much ticks all those … boxes and makes it look like the offerings they’re used to,” he said. “We hopefully think that this is enough to get them going.”

However, Mark Greenberg, managing director for Canada at the Delaware-incorporated crypto-trading platform Kraken, said he’s only “lukewarmly interested” in the TMX proposal.

Greenberg said he doesn’t see it as an immediate competitive threat, noting it’s only proposing to take orders from 8 a.m. to 5 p.m. despite the fact crypto markets operate around the clock. TMX is also proposing to offer crypto trading only to registered investment dealers, as opposed to retail investors.

“Given the volatility of crypto over time, it’s hard for me to imagine significant volume operating in places where they couldn’t take it out instantly,” Greenberg said. “But if it brings more new people into crypto … I see that more as a positive than as a competitor.”