Cobalt DL (Cobalt),
which plans to launch distributed ledger-based FX post-trade platform in 2017,
has announced a partnership with SETL to deploy its Open CSD distributed ledger
within the platform.
spokesperson for Cobalt declined to name a targeted go-live date for the
platform next year, the firm claims that it has 15 institutional FX
participants already committed to the service.
Profit & Loss previously reported on
Cobalt’s plans to try and reduce post-trade costs for financial services firms
by creating a shared view of trade data.
Now it has indicated
that it will use SETL’s OpenCSD platform to provide this, creating an immutable
record that will, in theory, obviate disagreements and reconciliation problems
between participants and could potentially result in significantly reduced costs.
are beginning to realise that there are actual practical things that can be
done with distributed ledger technology that will improve their P&L by
reducing costs, increasing transparency and simplifying their technology stack.
And this realisation is gradually accelerating,” Peter Randall, CEO of SETL,
tells Profit & Loss.
The SETL OpenCSD distributed ledger to be
deployed by Cobalt will be a depository
of trade information, captured in the Cobalt post-trade reconciliation system.
In a release issued
today, the two firms say that the record will provide cryptographic proof of a contract
and of the parties’ agreement to the
trade terms and that participants will be able to retrieve details of their own trading activity from the ledger in a
manner which absolutely verifies their
inclusion in the shared record, but does not allow them to examine other participants’ activities.
Explaining why his firm decided to
partner with SETL, Andy Coyne, co-founder of Cobalt, says: “We have undertaken an exhaustive review of the technology in the DL space and have chosen to
partner with SETL due to their demonstrated
technical leadership in the field, their
ability to process trades at scale and their team’s deep understanding of financial services.
The FX market requires
systems to be able to
achieve high burst transaction throughputs per second with daily capacity in the millions. SETL was able to demonstrate
resilient working technology comfortably
processing at both high burst and steady state speeds and in excess of 1.4 billion transactions a day – an absolute
necessity in the high volume FX market. The SETL
OpenCSD platform provides a real-world
interface and API structure that will allow us to fully integrate it into our solution.”
In addition to being
capable of handling transaction information at both high velocities and high
volumes, Randall says that there are three other characteristics that a
blockchain intended for financial services needs.
One of these is that
it must conform to all the Know Your Customer (KYC), Anti-Money Laundering
(AML) and other legal and compliance requirements as an integral part of the
“You can’t add these
elements in afterwards, it has to be in the DNA of the chain,” says Randall.
Additionally, he says
that blockchain designed for use in financial services should only move real
“People don’t want to
be paid in cryptocurrencies. There’s an established lexicon of practice around
what currencies are, what constitutes settlement finality, what good delivery
is, etc. These are well understood and well prepared and it gets difficult when
you try and fit a cryptocurrency into this framework. But there’s actually no
need to try and do that, it’s better just to use the currencies that financial
services firms are already transacting and that they do their accounting and
record their P&L in,” explains Randall.
Finally, he claims
that blockchain providers need to recognise that there isn’t ever going to be
just one blockchain designed to cover all assets and perform a multitude of
functions within the financial services industry.
“There’s going to be
many different chains, most of which will be toiling away at what are actually
rather mundane functions. But sometimes those chains will need to be able to
talk to each other and be able to move assets between each other in a manner that
won’t interfere with the integrity of either chain,” says Randall.
In the release
announcing the partnership, he describes Cobalt’s work as a “ground breaking
project” because, in contrast to the various white papers, reports and proof of
concepts regarding distributed ledger technology that are being promoted at the
moment, this is a tangible and economically viable use of the technology.
not a proof-of-concept or a prototype; it
will be a revenue generating implementation
of distributed ledger technology,” Randall adds.