As Dubai marches on its quest to explore the crypto sector, it has approved the establishment of its first over-the-counter (OTC) desk for crypto derivatives offerings. Laser Digital, the crypto-focused subsidiary of Japan’s Nomura bank, has secured the approvals to start these services.
Dubai’s crypto regulatory body, the Virtual Asset Regulatory Authority (VARA), is set to oversee this initiative as the city sees a significant demand for regulated crypto derivative products. Announcing the development, Laser said that the licence it secured is only partial and will allow it to offer options trading under VARA’s pilot trials.
“Laser Digital will offer direct client-facing crypto OTC option services as the first-of-its-kind ‘specialized’ regulated institutional offering,” the announcement said, indicating that large investors will be able to test out its offerings.
As explained by Fidelity, derivates are financial contracts that derive their values from underlaying assets including stocks, ETFs, or indexes among others.
When trading derivatives, traders enter a contract where one party becomes the buyer and the other, the seller. These contracts allow both parties to speculate on or hedge against the prices of the linked assets without actually needing them to own or hold the assets.
With Laser Digital setting up an OTC desk, it will essentially act as a specialized middleman to process large, customized derivative trades privately between two parties. Laser will eliminate the use of a third party exchange to facilitate these trade deals.
“We are honoured to be the first regulated entity under VARA to face clients for crypto options. We are grateful for the strong partnership with VARA,” said Jez Mohideen, Co-Founder and CEO of Laser Digital.
While derivatives let traders to manage risks through hedging, discover asset prices, and tap into the commodities markets — they do carry high leverage risks and are complex to engage with. In OTC derivatives trading, the risk of one party defaulting on the contract is higher after which the non-defaulting party could face significant financial loss.
VARA will be observing and studying the response to derivatives trading by institutional investors as part of these new crypto-focussed pilot.