OTC Exchange Network (OTCXN), which uses proprietary blockchain technology in a bid to eliminate trading counterparty and settlement risk on their trading network, has acquired Ogg Trading, a provider of FX trading technology.
Through this deal, which closed on June 18, 2018, OTCXN will acquire all Ogg Trading’s technology including the dark pool that it previously ran in partnership with Bloomberg. The dark pool is a complete matching engine technology stack. The plan is to add market data publishing to this platform in order to create a regular central limit order book (CLOB) with a lit pool of liquidity. Ogg Trading also has a liquidity aggregator and smart order router (SOR) system that can be deployed to run a quote driven market place.
But the real key to this deal is that this platform will then be integrated with OTCXN’s blockchain-powered network to facilitate the trading of both FX products and cryptoassets.
Profit & Loss took a deep dive look at this network back in October of last year. The basic construct is that market participants park collateral with recognized custodians who then issue digital, or “tokenised,” versions of that collateral onto blockchain ledgers on the OTCXN network. This digitised collateral can then be moved around the network and used against FX trading, with counterparties on the network able to trade with one another secure in the knowledge that the other side has the necessary collateral for the trade held at a custodian in case it is required.
“The core value of our proposition is that we essentially eliminate trading counterparty and settlement risk,” says Rosario Ingargiola, CEO of OTCXN Network. “What we’re doing with this acquisition is adding a platform that can run alongside our network. Initially we’ll focus on the FX side but we will quickly add cryptocurrencies as well, and then we can use our technology to offer prime brokerage-like services by enabling firms to access liquidity on that platform without any trading counterparty or settlement risk.”
Ingargiola argues that the acquisition of Ogg Trading will put OTXCN ahead of the competition in the crypto space, where currently there is a complete lack of advanced trading technology, as well as credit or prime brokerage (PB) solutions for firms wanting to trade these assets.
“This gives us an accelerated time to market in terms of launching both dark and lit exchanges in addition to liquidity aggregation and smart order routing for a quote driven liquidity pool in the crypto space. Part of the reason why there hasn’t been a huge rush by firms to do this already is because when you aggregate crypto liquidity and bring it all onto one platform, it’s not possible to make that liquidity actionable with one collateral account. But resolving that problem is the core of what OTCXN does and that’s why I think we’re uniquely positioned to leverage these combined solutions in the crypto space,” he says.
“The fact of the matter is that there’s no PB in the crypto space, so that means there’s no cross exchange clearing and settlement, which in turn means that there’s no way to do a bilateral trade and have it clear without full counterparty and settlement risk – which is basically a “trade and pray” model. Offering a solution that eliminates this risk will be highly beneficial in the crypto space, which ultimately, we think will be an extension of the FX market. A lot of people think about cryptos like equities, but I think that they’re very different animals and that this market is much closer to the FX space.”
“The immediate goal on the FX side is to get clients up and running within a normal credit framework, and then the longer-term strategic play is to work closely with PBs to help them and their clients face other clients on our network that do not have PBs without taking on any additional counterparty or settlement risk. As they get comfortable with how blockchain technology can reduce key cost and risk factors, then all of a sudden, we’re able to bridge the gap between two different worlds for the benefit of all of the parties,” explains Ingargiola.
He adds: “The reason why this is possible is because our blockchain and real-time collateral management technology fits into the traditional trading structure by offering provability around things such as net open position (NOP) limits, pre-trade credit checks and around trade matching where orders are digitally signed. And because these transactions are only being done based on provable collateral on the blockchain or provable credit on the blockchain, everything is auditable and the need for trust is effectively eliminated.”
OTCXN also gained further FX trading and technology expertise as part of this deal. David Ogg, who founded Ogg Trading and launched it in 2011, has joined the firm and will operate as head of FX and the trading venues that OTCXN will now operate. In addition, Rutie Zhou, who served as the CTO of Ogg Trading and was principally responsible for building the platform, will move across into a new role as the principal engineer on OTCXN’s HFT engineering team.
Ogg’s FX career stretches back to 1982 and includes running FX in New York for Credit Suisse, HSBC, Lehman Brothers and Dresdner. He was also the CEO and founder of Hotspot FX and the CEO and founder of LavaFX. Meanwhile, Zhou began his financial services career in 1992 and held leading technology positions at firms such as Hotspot FX, Bear Stearns and Natixis, before joining Ogg Trading in 2011.
“I’ll be running the FX trading platforms but also supporting deployment of our software into the crypto world,” says Ogg. “This technology is perfectly suited for the crypto space, it’s much more advanced than what is out in the market at the moment, and when you combine it with what Rosario has already built, I think that it’s going to be a very powerful combination and something that the crypto world has not seen before.”
Looking ahead, Ingargiola suggests that further acquisitions may be in the cards if opportunities to buy assets that would further enhance his company were to present themselves.
“We may look at other possibilities and consider solutions which could complement our existing blockchain and capital markets infrastructure, providing it aligns with our overall strategy of being the leading digital asset trading network. But we’ll also look at going down the path of creating partnerships where that makes sense,” he says.
Thinking even longer-term, Ingargiola claims that this acquisition will position OTCXN well for a future when the majority of assets become digitised.
He comments: “The fact that we have an asset tokenisation solution that we give to customers that is powered by high-performance blockchain and a real-time collateral management layer means that we can support the trading of all kinds of digital assets. Our belief is that, in the long-term, everything will get tokenised and so we’ll be positioned to support digital asset trading generally, regardless of what the underlying asset is.”