As more financial services firms look for ways to utilise blockchain technology within their infrastructures, Galen Stops examines whether the technology is really as safe as advocates claim, following two high-profile hacks earlier this year.
“Cyber and system security is one of the most important issues facing markets today in terms of integrity and financial stability,” said Commissioner Christopher Giancarlo of the Commodity Futures Trading Commission (CFTC) on September 8, when approving system safeguard requirements for derivatives clearing organisations.
Giancarlo is hardly alone in his concerns.
Calypso Technology has become the first firm to partner with R3 to develop capital markets applications on its Corda distributed ledger-based smart contract platform.
The two firms are currently developing a multi-party trade confirmation solution and testing it with multiple financial institutions.
R3’s Corda – which will be open-sourced globally on November 30 – is designed to be an open and inclusive smart contract platform that enables third party providers and partners to build and operate distributed ledger applications using common code and protocols to ensure interoperability.
Franck Mikulecz, managing director of FXCH, talks to Galen Stops, deputy editor of Profit & Loss, about how blockchain technology can help mitigate some of the credit challenges facing the FX industry.
With blockchain, or distributed ledger technology, still being so new to financial services, Mikulecz claims that banks are still trying to figure out the most effective way to deploy this technology.
“I can see a lot of banks have an interest because they know that the market will evolve and the market will potentially be disrupted by the technology but they don’t really know how it’s going to happen and they don’t really know how to use it themselves.
The Depository Trust & Clearing Corporation (DTCC) has selected IBM, in partnership with Axoni and R3, to provide a distributed ledger technology (DLT) framework for derivatives post-trade lifecycle events.
The firms will work collaboratively to re-platform DTCC’s Trade Information Warehouse (TIW), building a derivatives distributed ledger solution for post-trade processing based on existing TIW capabilities and interfaces with technology providers and market participants.
The TIW service currently automates the record keeping, lifecycle events, and payment management for more than $11 trillion of cleared and bilateral credit derivatives.
OTC Exchange Network (OTCXN) has joined the The Wall Street Blockchain Alliance (WSBA) as a corporate member.
OTCXN is utilises blockchain technologies and smart contracts for its peer-to-peer trading network, which will launch initially for the FX market.
OTCXN's trading platform leverages proprietary blockchain and smart contracts technology designed to provide transparency and operational controls to enable safe and secure trading directly between counterparties, even if they are not known to one another.
The aim of OTCXN is to replace the current credit system in FX, whereby firms are required to establish credit arrangements with prime brokers - a process that can take as long as 18 months to complete - in order to participate in the FX marketplace.
The Depository Trust & Clearing Corporation (DTCC) has completed its proof-of-concept for using a distributed ledger based solution to manage the clearing and settlement of US Treasury, Agency, and Agency Mortgage-Backed repurchase agreement (repo) transactions.
Working with Digital Asset, the two companies have demonstrated the successful netting of “start” leg repo transactions with prior end-of-day net securities obligations in the DTCC environment. With Phase One now complete, DTCC and Digital Asset have progressed to Phase Two, where they will form a Stakeholder Working Group comprised of leading market participants active in the $3 trillion per day U.S. repo and related transaction market to collect independent feedback and ensure the solution is aligned with industry needs.
OTC Exchange Network (OTCXN), a provider of blockchain technology, has appointed Drew Rasmussen as its new CTO.
As OTCXN’s CTO, Rasmussen will be responsible for overseeing all technical design, technological resources, and technology development. Additionally, he will be tasked with facilitating the overall architecture and development of the company’s proprietary Blockchain fabric, also known as distributed ledger technology (DLT).
He will report to Rosario Ingargiola, the company’s founder and CEO.
“We are thrilled that Drew will bring to OTCXN his unique expertise in developing Blockchain technologies specifically for large-scale use cases at global financial institutions,” says Ingargiola.
After two years of endless hype, Galen Stops looks at whether 2017 will be the year that distributed ledger technology broadly starts getting put into production within mainstream financial services.
Last year saw numerous firms producing proof-of-concepts (POC) regarding the potential application of distributed ledger technology (DLT), issuing whitepapers about the technology and hosting “hackathons” and other events to discuss and promote its use within financial services.
Profit & Loss covered the major developments around DLT last year, but the editorial team started expressing frustration towards the end of the year regarding the disparity between the PR and subsequent press coverage surrounding DLT and the actual amount of tangible projects being put into production using this technology.
Compression service provider, LMRKTS (Lmrkts), has become the first firm to sign up to Cobalt DL’s BlueSky service, the shared ledger component of Cobalt’s platform.
The Cobalt BlueSky service is a secure repository of unique shared FX contracts and the staging area for lifecycle events, risk reduction and preparation of trades for settlement finality. It is designed to enable third party technology providers to facilitate and develop their own applications based on access to the database of reconciled transaction data created by the Cobalt network.
CLS has announced plans to expand its bilateral payment netting service, due to launch in 2018, to support more than 140 currencies at launch as opposed to the 24 currencies initially planned.
In a release issued today CLS says that this decision was taken in response to demand from market participants. Coverage will now include all currencies associated with jurisdictions not on an official black and grey or sanctions list that would prevent CLS from conducting business with that jurisdiction.
Speakers at Profit & Loss’ Forex Network London tried to “de-mystify” blockchain technology as they talked about its practical applications within the financial services industry.
Andy Coyne, CEO of Cobalt DL, explained that when he first began looking at how blockchain technology could be applied to post-trade FX he found that there was a lot of noise and hype around the technology, but that there was a dearth of companies actually ready to implement it in a practical manner.
Coyne said that he looked at the issue that his firm was trying to solve, which was how to reduce cost and risk in post-trade processes, and then started examining if and how this technology could help.
Citadel Securities and XTX Markets have signed up as Cobalt launch participants.
Cobalt’s FX solution is set to launch later this year. There are currently 22 beta participants on Cobalt’s peer-to-peer network including Citi, which became a Cobalt investor in 2016, and Cobalt’s technology partners, including Setl, First Derivatives and Tradepoint.
Cobalt has also announced the expansion of its core team and the opening of a New York office.
Devika Darbari joins Cobalt as COO from JDX Consulting, where she was a board member and CEO Americas. She will also head up operations in the US.
Following the launch of Sucden Financial’s new OTC FX options service, Galen Stops talks to Noel Singh, head of e-FX business development at the brokerage, about how it’s planning to diversify its FX offering.
Despite having an FX franchise that is over 30 years old, an e-FX offering that has been around for more than eight years and a balance sheet of over $100 million, Sucden Financial is not exactly a household name in the wholesale FX market.
But the firm is now working to change that as it seeks to diversify its FX business in response to changing market conditions.