The distributed ledger technology pioneers are partnering to bring cutting-edge automation to foreign exchange (FX) trading.
Two distributed ledger technology (DLT) pioneers SETL, a London-based financial blockchain specialist, and Cobalt DL, a private peer-to-peer network provider, have joined forces via a new partnership intended to yield a post-trade platform for foreign exchange (FX) transactions.
“In June 2016, SETL announced the launch of our blockchain-powered OpenCSD platform, which enables any market participant to commission and run a permissioned registry service for payments, settlement and clearing of cash and other financial instruments,” says Peter Randall, CEO of SETL, in response to questions from FTF News.
“At $5.1 trillion per day, FX is a huge market where the benefits of distributed ledger technology can be realized relatively quickly and easily,” Randall says. “This partnership brings together the deep FX experience of Cobalt DL with SETL’s FS-focused blockchain technology.” The SETL offering to be used by Cobalt DL will “cooperate with other SETL blockchains,” he adds.
Essentially, the combined efforts will result in the SETL OpenCSD working within the Cobalt FX post-trade platform, officials say. SETL officials say their system has the capability to handle high bursts of data and steady streams for up to 1.4 billion transactions per day. In addition, the SETL OpenCSD platform has an application programming interface (API) structure to facilitate integration.
“The FX market requires systems to be able to achieve high burst transaction throughputs per second with daily capacity in the millions,” according to a statement from the vendors. The new service is slated to launch next year with “15 leading institutional FX participants” that decline to be identified, vendor officials say.
“Cobalt DL will create a single, shared view of each FX transaction using SETL’s OpenCSD platform,” according to the vendors. “The immutable record will obviate disagreements and reconciliation problems between participants and is expected to result in significantly reduced costs. Cobalt DL’s combination of market expertise and forward-thinking technology will dramatically shake up the post-trade space.”
The SETL OpenCSD distributed ledger that Cobalt DL will use will serve as a depository of trade information, captured in the Cobalt post-trade reconciliation system, officials add. “The record will provide cryptographic proof of a contract and of the parties’ agreement to the trade terms. 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,” according to the vendors.
The joint effort is targeting the FX market’s legacy infrastructure of “duplicative and inefficient” efforts such as the creation of a single trade that results in “multiple records for all parties, including buyers, sellers, brokers and clearers,” according to the vendors. “FX market participants incur multiple unnecessary license fees, ticketing charges, IT overheads and staff costs as a result of the complexity of existing structures.”
In fact, the goal of a shared view of trade data is to free up back- and middle-office resources “from multiple layers of reconciliation,” according to the vendors. The Cobalt DL FX platform has been created to integrate with trading sources and link to venues with the promise of efficiency benefits and cost reductions.
Andy Coyne, co-founder and CEO for Cobalt DL
SETL and Cobalt DL are a “great fit,” says Andy Coyne, co-founder and CEO for Cobalt DL, in response to questions from FTF News. SETL is a company that has demonstrated technical leadership in the field and has a team that understands financial services, Coyne adds. “We have been in contact with SETL for over a year and formalized our partnership in Q3 this year. We aim to launch a live solution in 2017. Unfortunately we cannot be more specific at this stage.”
Coyne says Cobalt DL undertook “an exhaustive review” of the technology providers in the DLT space before it decided to partner with SETL. He declined to disclose the other providers considered for this partnership.
Citing the “common focus on speed and resiliency” of the two vendors, Randall describes the project as groundbreaking. “This is not a proof-of-concept or a prototype,” Randall says, in a statement. “It will be a revenue generating implementation of distributed ledger technology.”
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