In what is a first for SA, crypto exchange VALR has been granted an Over-the-Counter Derivatives Provider (ODP) licence which allows it to issue derivative products such as options, contracts for difference (CFDs), futures, forwards and swaps across a number of asset classes.
CFDs are derivatives that allow investors to gain exposure to price movements in underlying assets such as shares, indices, cryptocurrencies and forex pairs without actually owning the assets. CFDs (and other derivatives) are leveraged, allowing traders to gain larger positions with a smaller amount of capital.
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Earlier this year, VALR became one of the first crypto asset service providers (Casps) in South Africa to receive both Category I and Category II licences from the Financial Sector Conduct Authority. A Category I licence permits the company to offer advice or intermediary services without having discretion over client funds, while a Category II licence allows it to manage client funds on a discretionary basis.
In addition to offering CFDs, the new ODP licence allows VALR to issue quarterly and perpetual futures contracts with crypto assets as the underlying, as well as options, forwards and swaps, all with crypto assets as the underlying.
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“This marks one of the first occasions in South Africa that a financial service provider (FSP) is licensed to offer these products with crypto assets as the underlying,” the company says in a statement.
“The additional FSP licensing allows VALR to extend its offerings to traditional financial products, including shares, bonds and securities.”
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Blake Player, chief commercial officer at VALR, says while the ODP licence allows it to issue futures and options, the more immediate need from the market is for institutional and some retail investors to hedge exposures in the market. For example, those who are long bitcoin (BTC) but want to protect against short-term selling pressure may want to hedge their positions by going short bitcoin in the futures market. This allows them to retain ownership of BTC without having to sell into a softer market.
Options are derivative instruments that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price at a defined point in time. Traders will buy or sell options to achieve certain financial outcomes, usually to hedge risk or “purchase insurance” over the price movement on an underlying asset.
“The new licence means we can issue options for risk management needs. For example, we can write a put option for a bitcoin treasury company that creates a floor price which, if bitcoin breaks below this level, would pay out. This is another increasingly popular way of hedging,” says Player.
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VALR already offered perpetual futures (which do not expire) but without taking any risk itself. It offered these products to clients by providing a marketplace for futures, but the new licence means the company can now originate, issue, sell or make a market in OTC derivatives. It also means VALR can, within reason, take the opposite side of a client’s trade provided it is transparent about this.
Two months ago, VALR announced the issue of several xStocks – cryptocurrencies that track the movements of traditional US equities. Player says the company is about to add several more xStocks, including one that tracks the S&P 500 index.
In July, it announced the launch of yield-bearing crypto asset USDPC (a tokenised North American private credit strategy), with a target annual return of 8% to 10% in USD – the first time this has been available in SA.
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Farzam Ehsani, co-founder and CEO of VALR, says the granting of the ODP licence is another step towards bridging the gap between crypto and traditional financial markets.
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“This ODP licence represents a critical step in integrating crypto assets with established financial instruments, allowing us to deliver secure and compliant products to our clients. It underscores our commitment to regulatory excellence and operational integrity and we’re very excited about introducing more and more products that serve our users.”
It also positions SA as a pioneer in Africa for regulated crypto derivatives.
“From a broader crypto industry perspective, the approval highlights the maturing integration of crypto with traditional finance, enabling more sophisticated risk management and trading strategies. This reduces barriers for institutional and retail participants, promoting wider adoption and optionality in global markets,” says VALR.
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