Articles tagged by DLT
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.
Galen Stops sat down at Consensus 2017 with Sandra Ro, executive director and head of digitisation at CME, to talk about the nascent technologies the exchange group is exploring and how they could improve the way that assets are traded.
Broadly speaking, CME Group’s “digitisation” effort can be divided up into two distinct categories. One is related to how blockchain, or distributed ledger technology (DLT), can replace or improve core infrastructure in financial markets, the other, interestingly, is the “digital tokenisation” of physical assets.
Galen Stops looks at why demand for cryptoassets has skyrocketed in 2017 and assesses whether they have any future in mainstream financial markets.
The first working implementation of a blockchain that the world had ever seen was in the Bitcoin software released in 2009. Bitcoin the cryptocurrency then rose to prominence in 2013 when, driven in part by a flurry of media attention, its value rose past $1,000 for the first time.
Following that, 2014 represented a long and painful year of price decline for Bitcoin as an asset, but it continued to garner a lot of attention, not always for good reasons. Then in 2015 the narrative began to change as people really started talking about the potential applications of blockchain technology distinct from any digital assets.
Speaking at the Profit & Loss Forex Network New York conference, panellists outlined how they think the application of fintech solutions will shape the FX industry going forward.
Nick Solinger, president of FIA Tech, broke down three specific areas where he sees the potential for distributed ledger technology (DLT), or peer-to-peer technologies, to have a major impact on the FX industry.
Firstly, he highlighted how these technologies could change payments systems.
“The current market structure has been the primary limitation in terms of who can provide credit to whom and trade with whom and access the market on the same basis as a large, highly regulated dealer. So there is a focus on improving the payment network, and that will have potential implications upstream in terms of who can trade with whom,” said Solinger.
Rosario Ingargiola, founder and CEO of OTCXN, argues that accessing wholesale liquidity is one of the biggest challenges in the FX market today that could be alleviated by fintech solutions.
Speaking about different approaches to the FX market by fintech firms, Ingargiola says that one strategy is to look at areas where new technologies can reduce costs in terms of how firms operate and another – which he says OTCXN is pursuing – is to use technology to change the way that firms operate altogether.
The area where he sees the biggest opportunity to change the way that firms operate using fintech solutions is around using credit to access the FX market.
Execution analytics provider BestX is partnering with Cobalt, the FX post-trade processing network based on distributed ledger technology.
BestX is the first TCA and analytics provider to connect with Cobalt’s BlueSky service, enabling clients of both firms to independently validate client trades and define, achieve and demonstrate best execution through Transaction Cost Analysis (TCA).
Pressure for independent analytics in FX has increased over the past year, driven by MiFID II compliance, regulatory focus on transparency, as well as a more activist ‘asset-owner’ community that wishes to see evidence of best execution across all FX trades.
Cobalt, the FX post-trade processing network based on shared ledger technology, has closed an investment from Henry Ritchotte, the former COO of Deutsche Bank, who will become a member of Cobalt’s strategic advisory board.
Ritchotte spent over two decades at Deutsche, where he was a member of the management board and Group Executive Committee acting as chief operating officer and chief digital officer.
Since leaving the bank at the end of 2016, Ritchotte established RitMir Ventures, a principal investment firm focused on investing in products and services transforming finance through disruptive regulatory and technology driven business models.
As P&L’s resident cryptocurrency enthusiast I'm excited by some of the developments that have occurred in this space over the past few months, because it could signal the start of these digital assets moving towards the financial mainstream.
To help explain why I think this is such an interesting time in the cryptocurrency space, I explain how I first became interested in them after joining Profit & Loss, that I refused to buy bitcoin when it was at $1,000 because "it will never go higher than this" (it's now at $4,300) and why recent regulatory developments could have significant implications for financial services firms looking at trading cryptocurrencies.
Cobalt, the FX post-trade processing network based on distributed ledger technology, has joined the BT Radianz Cloud.
This means that organisations can now access Cobalt’s private peer-to-peer and blockchain services via their Radianz Cloud connections. The Radianz Cloud links a community of thousands of brokers, institutions, exchanges and clearing and settlement houses. Through a single secure network connection, members can access thousands of applications and services from more than 400 providers critical to the everyday running of the global financial sector.
Cobalt deploys distributed ledger technology to try and remove cost and complexity from post-trade processing. It leverages blockchain-derived concepts of encryption, digital signatures and consensus to deliver a single, immutable record for each trade, replacing traditional systems, which often involve duplicated processes. By creating a shared view of trade data, Cobalt aims to free up back and middle office resources from multiple layers of reconciliation, speeding up processing.
What are the biggest challenges still facing FXPBs today and how can they be overcome? Galen Stops takes a look.
There’s no getting around the fact that regulation has changed the economics of the FX prime brokerage (FXPB)
business, and not for the better.
“You can classify PB costs into three basic categories – technology, human resources and direct transactional costs,” says Sanjay Madgavkar, global head of FXPB at Citi.
The first two of these are fixed costs that an FXPB has to pay, but the new regulations under Basel III have made it more expensive for banks to provide FXPB services to certain clients, meaning the overall profitability of some portfolios has fundamentally declined.
OTC Exchange Network (OTCXN) has announced that DV Trading has joined its early adopter Program as a liquidity provider.
DV Trading will support Foreign Exchange liquidity provision in relevant currency pairs on OTCXN’s network. OTCXN’s Peer-to-Peer trading network and total trade-to-settlement solution aims to deliver a hybrid market model that combines high-performance, real-time trading technologies and enterprise blockchain technologies to solve market credit gaps, lower risk, and increase eligible counterparties.
“Innovation is core to our business, and we strongly support OTC Exchange Network in its mission to democratise financial markets while leveraging Blockchain technology to reduce credit and settlement issues. The global foreign exchange market is a natural place to start, but we expect OTCXN to adapt its technology solutions to support additional asset classes in the near future,” says Jared Vegosen, co-founder of DV Trading.
Swift has published an interim report on the proof of concept for real-time Nostro reconciliation using a Swift-developed distributed ledger technology sandbox with 33 global transaction banks, as part of its global payments innovation service.
The PoC is testing whether DLT can help banks reconcile Nostro accounts more efficiently and in real-time, while lowering costs and operational risk. The report provides an overview of the PoC to date, including technical objectives, early findings on the potential business benefits, as well as key challenges that still need to be addressed to achieve industry-wide adoption.
Digital Asset announced that it has raised over $40 million of Series B financing from existing and new investors, led by Jefferson River Capital.
The latest round brings the total funding raised by Digital Asset to over $110 million as the company expands its global presence. Additionally, the firm has expanded its executive team with Clyde Rodriguez, former co-CTO of Two Sigma Investments, joining as chief information officer and CTO of engineering.
“Distributed Ledger Technology has the potential to bring greater transparency, security and efficiency to financial services and beyond. We are in the early stages of an important technological transformation that requires strong engineering discipline to deliver credible and practical solutions,” Rodriguez says. “I am excited to join a world-class team that has the necessary skill and focus required to accelerate these important innovations, while helping our customers embrace the benefits of DLT.”