By Pete Harris, Principal, Lighthouse Partners
Financial markets firms seem to be forever complaining about an increasingly competitive marketplace that is driving down revenues and increased compliance and operational procedures that are pushing up costs. No surprise then that many are looking at a technology called block chain in order to simplify their post-trade infrastructures and speed up clearing and settlement, both of which feed through to lower costs.
One data point: Recent research conducted by Santander Innoventures suggests that banks globally might save as much as $20 billion annually in post-trade costs by 2022 if they leverage block chains as a key element of initiatives broadly characterised as back office 2.0.
Block chains are distributed, shared immutable data stores. One version of the technology makes the bitcoin crypto currency work, but other variants are being developed to help boost transaction processing applications across many industries. Here’s an overview of some of the projects and startups that are looking to make a mark in 2016 in the financial markets.
Alphapoint – This New York City company originally focused on white labeling matching technology for bitcoin exchanges. More recently, it has added the StreamCore block chain platform to its offerings, drawing on immutable database architectures designed by CEO Joe Ventura back in his Wall Street technology days.
Blockchain Clearing Corp (BCC) – Founded in San Francisco and just emerging from stealth mode, BCC is looking to apply block chain technology to the US equities marketplace. More specifically, the company is hoping to work with a small number of clearing firms, that account for maybe as much as 80% of clearing, to implement delivery versus payment settlement.
Clearable – A New York City vendor also emerging from stealth and focusing on using block chain technology in the post-trade processes of FX spot and derivatives trading.
Clearmatics – founded by former hedge fund manager Robert Sams, who is CEO, London-based Clearmatics is “developing the next-generation clearing machines for OTC markets” and is known to be collaborating with UBS on prototypes.
ConsenSys – Based in Brooklyn, NY, and founded by former hedge fund manager Joseph Lubin, ConsenSys develops applications and tools primarily for the Ethereum public block chain. One recently released application is eTRS, a total return swap processing system that runs on Microsoft’s Azure cloud.
Digital Asset Holdings (DAH) – With former JPMorgan Chase credit derivatives guru Blythe Masters as its CEO, DAH is working on block chain approaches to speed up settlement processing. Former BT and Swift executive Chris Church recently joined the company to run business development, while SunGard’s former CEO Cris Conde became a non-exec director.
Eris Industries – Originally founded in London, but now run from New York City, Eris is developing smart contract (think business rules that are encapsulated in and run on block chain data) technology for a number of financial services applications, including post-trade processing.
Hedgy – A San Francisco-based startup, Hedgy has developed block chain based applications to “independently create, enforce and physically settle OTC forward contracts.”
HitFin – Based in San Mateo, CA, HitFin claims “bilateral settlement of over-the-counter derivatives trades in 15 seconds” using its Ethereum-based offering.
IBM – As one might expect, Big Blue is pretty advanced in its thinking and plans for block chain technologies. It recently became a pivotal founder member of an open source block chain initiative formed by The Linux Foundation, donating significant amounts of code to the project. Financial players also involved include Deutsche Borse, JPMorgan Chase, London Stock Exchange, State Street and Wells Fargo.
itBit – The New York City based regulated bitcoin exchange and OTC trading desk has introduced Bankchain, which leverages “private permissioned distributed ledger technology to revolutionise how financial institutions operate post trade.”
Ldger – Also based in New York City, Ldger’s block chain platform enables the structuring, modeling, marketing and ongoing management of structured marketplace credit assets.
Magnr – Based in London and led by former Deutsche Bank and UBS executive Colin Kwan, Magnr offers bitcoin saving accounts to retail investors, but also recently announced Project Kodo, a securities settlement system.
Mirror – Based in San Francisco, the company began life as a bitcoin exchange but switched focus to block chain based trade processing. Its platform is designed to provide a “central point for transparent pricing of exotic risk, improving price discovery and enabling eligible contract participants to hedge exposure at a fraction of today’s costs.”
NasdaqOMX – The exchange group has been exploring applications for block chain technology, initially for its Nasdaq Private Market (NPM). NPM recently used its prototype Linq system to record issuance of stock in a company called Chain, which provided technology for the system.
R3 – The New York City-based consulting and research firm led by former ICAP CEO David Rutter is leading a bank consortium project (42 banks at the last count) to build a block chain based utility for post-trade securities processing.
SETL – Based in London and led by CEO Peter Randall, who was the founder and CEO of the pan European Chi-X exchange, SETL is building a permissioned block chain for post-trade processing that is capable of up to 100,000 transactions per second.
Symbiont – Based in New York City, Symbiont is led by CEO Mark Smith, a former foreign exchange marketplace executive, and has a leadership team that draws heavily on core members of the open source Counterparty project. Symbiont is developing so-called Smart Securities, which are issued using block chain technology and whose lifecycle is automated through smart contracts.
t0 – With its name signifying real-time settlement, this unit of online retailer Overstock is developing block chain based platforms for the issuance, trading and settlement of securities, drawing on acquisitions of order routing technology and regulated brokerage services.
Clearly, there’s a lot going on. With so many block chain players targeting the trade processing space, one can imagine winners and losers will emerge over the next 12 to 24 months, and most likely some acquisitions and mergers (a few have already occurred). What will be really interesting – and potentially game changing – is to see which of the incumbents in the post-trade space will get involved in block chain offerings and how they will go about doing so.
Want to know more about financial markets applications of block chain technology? Want to find out more about IBM’s plans in the space? Or engage with execs from Alphapoint, Blockchain Clearing, ConsenSys, HitFin, Symbiont and t0? Then attend The Block Chain Conference taking place on February 10, 2016 in San Francisco. Register today at http://www.theblockchainconference.com and use the promo code ATEAMVIP for a discount.
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