Until the 1970s in the US and into the 1980s and 1990s in the UK and Europe, the major equities exchanges used to clear their own trades, with each exchange running its own clearing logic, posting its own collateral schedule, and treating every trade as a self-contained event.

The system worked until it didn’t. Increasing trading activity amplified the weaknesses inbuilt into each of these operational silos and led to the ‘Paperwork Crisis’, which in part reduced trading hours and damaged market confidence.

The US equity options market offers one of the starkest early examples. When the Chicago Board Options Exchange (CBOE) launched in 1973, volume rapidly outpaced the old over-the-counter market, leading rival exchanges to rush to list options. Each exchange planned its own clearing silo and infrastructure, fracturing the nascent options market. They duplicated risk, trapped capital, and blocked netting efficiencies at the venue boundary in highly manual post-trade systems.

The solution: transform the market structure with horizontal clearing houses. By sitting between many venues and many participants as a central counterparty (CCP), these clearing houses could novate trades across the breadth of their market, net exposures across the whole market and margin them as a single portfolio.

In the case of equity options, the SEC intervened to make market access conditional on a single shared CCP: the Options Clearing Corporation (OCC). Rechartered in 1975 and jointly owned by all participating exchanges, the OCC acted as guarantor of every listed contract across every venue. Horizontal clearing was not a market choice but a regulatory precondition for the market to exist at all.

The result: the ability to dramatically scale markets. The US equity options market increased from 911 contracts on its first day of trading in 1973 to over 12 billion contracts cleared by the OCC in 2024 alone, and that simply could not have scaled without neutral, shared clearing infrastructure to support it.

Digital asset markets are now staring at the same crossroads. At ClearToken, we believe that the next phase of market development will be unlocked not by a faster blockchain or slicker technology, but by the comparatively unglamorous financial market infrastructure (FMI) that turned equities, futures, and FX into the deepest markets in the world.

What “Horizontal” Actually Means

A vertical clearer is integrated with a single trading venue: you trade, clear and settle within their silo. A horizontal clearer is a neutral market infrastructure that connects many venues, many custodians, and many settlement banks together in a network. Participants across the market can connect to each other regardless of where they trade, with risk and collateral managed centrally.

The benefits of this approach are broad and tangible:

• Novation of contracts legally establishes the clearer as the central counterparty to each leg of the trade, replacing a tangled web of bilateral exposures with a single, transparent, and typically regulated, FMI.
• Multilateral netting becomes possible, offsetting gross obligations across all venues and collapsing them into a fraction of their original size; this compression can exceed 90% for the most netting-friendly products such as cleared interest rate swaps.
• Portfolio margining lets a long position on Venue A offset a short on Venue B, eliminating the need to lock up capital twice.
• A neutral default waterfall of margin, default fund contributions, and CCP skin-in-the-game replaces a patchwork of opaque venue-specific risk policies.

That’s the playbook traditional finance has run for over fifty years. It is well understood, well regulated, and battle-tested through more market dislocations than crypto has had cycles.

Why Crypto Needs It More, Not Less

Despite its roots in decentralised finance, crypto, ironically, is the perfect candidate for horizontal clearing precisely because it is fragmented. Common exchange aggregators list hundreds of active crypto exchanges, with liquidity bifurcated further across OTC desks, ECNs, and decentralised on-chain venues. In re-establishing vertical operational silos, centralised exchanges are replicating the same inefficiencies as vertical exchanges in the past. Trade settlement is overwhelmingly bilateral, often Free-of-Payment (FoP), with each participant doing their own KYC, credit assessment, and collateral negotiation against every counterparty they touch.

That model has three problems institutions cannot live with today:

Capital is stuck in the wrong places. Without netting across venues, the same exposure has to be collateralised many times over. For an active market-maker, that’s the difference between a viable and unviable book.
Counterparty risk is everywhere and nowhere. Bilateral FoP settlement is a high trust, high risk approach, dependent on counterparties meeting their obligations directly with no co-ordinating intermediary. This means every trade carries an embedded credit decision. When a venue or counterparty fails (and they do) the loss propagates uncontrolled.
There’s no shock absorber. When traditional markets seized in 2008 and again in 2020, CCPs absorbed defaults without breaking. Models in which a single venue holds execution, clearing and custody together concentrate the same risks they’re meant to manage, with less of the regulatory architecture that backs a CCP.

Whilst a single venue may be able to resolve the risks present in their own clearing arrangements, by definition, they cannot net or margin across the wider market. The fragmentation, and the capital trapped inside it, remains. To unlock the institutional flow that’s been waiting on the sidelines, the market needs a clearing model that is venue-agnostic, regulated, and built to the same standards that institutional risk function already understand.

The Layer that Unlocks Scale

This is why ClearToken is building a horizontal CCP from day one, subject to regulatory approval from the Bank of England, with subsequent recognition planned in the US (CFTC) and ADGM. We will connect to multiple trading venues, multiple custodians, and multiple settlement banks. We will novate, net, and margin across the whole picture. We will sit between buyers and sellers as neutral infrastructure, not as a competitor to any of them.

The lesson from TradFi isn’t that crypto needs to look like equities. It’s that the post-trade plumbing that equities ‘figured out’ is what allowed equity options markets, and others like OTC derivatives, to scale safely and cheaply. Decentralised execution and centralised clearing are not in conflict: in every mature market, they coexist.

The institutions we speak to don’t want crypto to be less crypto. They want it to be clearable. They want to trade across the best venues without re-posting collateral five times. They want a regulated counterparty that stands between them and a tail-risk default. They want post-trade certainty.

Horizontal clearing won’t trend. It won’t be the loudest layer of the stack. It will discretely do for digital assets what its predecessors did for equities and futures: turn promising markets into deep ones and make institutional participation a question of when, not whether.