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Hedge Funds Flock to Broker That Embraced Bitcoin Futures Early

A London-based brokerage is going where many large banks fear to tread — and it’s paying off.

ED&F Man Capital Markets, a $14.2 billion company, has signed agreements with 35 hedge funds, family offices and proprietary-trading firms to help them buy and sell bitcoin futures and is in talks with at least a half dozen more.

The brokerage is capitalizing on clearing futures for clients while big banks have largely held back. ED&F Man has been working with CME Group Inc. for about seven months to prepare for the opening of the futures market, said Brooks Dudley, vice president of risk in the U.S.

“The prime brokerage relationship is an important one, people don’t hop around prime brokers,” Dudley said in an interview. “So to bring on a lot of new clients for one product is very unusual.”

Cboe Global Markets Inc. opened futures trading this week, while CME’s offering is expected to debut on Sunday and Nasdaq Inc. plans to enter the business next year. Though trading has been light, the expanding market is expected to eventually attract more large-scale investors. Volumes could eventually be in the hundreds of millions, hedge fund investor Michael Novogratz said Monday in an email.

“There were a couple of proprietary-trading firms that I didn’t expect to trade bitcoin, had never been really excited about it, and then Thursday, Friday they called and asked if we could prepare them for the open,” Dudley said.

Many mainstream banks have been avoiding the futures market because of the cryptocurrency’s volatility and fear of reputational risks should the nascent asset class blow up. Margin requirements are also steep, giving rise to concerns that clients won’t be able to post collateral if the prices swing wildly. Goldman Sachs Group Inc. is among a small group of banks clearing the trades, while JPMorgan Chase & Co., Citigroup Inc. and Morgan Stanley are continuing to evaluate, according to people with knowledge of their deliberations.

“It’s the narrative that I’ve been hearing for weeks: People that are already customers of the banks realizing that they’re not going to be able to clear futures from day one,” Dudley said.