Blockchain meets FX post-trade as beta testing begins

From the hi-tech hubs of Silicon Valley to the money managers of the City and Wall Street, everyone is trying to work out how they can adapt and take advantage of this nascent technology called blockchain.

While the array of potential applications remains vast, clusters of technology firms are already using the technology to simplify and streamline existing financial infrastructures. One such firm that has set its sights on reshaping the post-trade space is Cobalt DL.

The firm, co-founded by ex-Traiana Chief Executive, Andrew Coyne, announced the commencement of beta testing on its private peer-to-peer network for post-trade foreign exchange following a year of design and testing. The platform will launch in 2017, with eight leading institutional FX participants already on board.

Cobalt DL utilises blockchain technology to simplify FX trading databases, significantly reducing post–trade costs and risk. By creating one sole verified record of a transaction or contract that is accessible to all parties, the platform addresses problems such as data fragmentation, reconciliation and ticket matching.

As a pioneer in post-trade FX with a wealth of experience, Coyne believes the blockchain-inspired platform can streamline post-trade processing, reducing costs and risk across financial markets.

“It is a great test case for distributed ledger technology”, says Coyne. “These are all independent contracts which are created, live and have finality. They have at least two and sometimes more participants. Two parties can share a contract with it just needing it to be recorded once.”

Cobalt’s initiative is a prominent example of how mainstream blockchain has become. Since its launch in 2009, as the backbone of technology behind Bitcoin, blockchain continues to be the focus of significant investment and innovation in the financial industry. Although still in its infancy, distributed ledger technology promises to streamline financial services by rendering them more democratic, secure, transparent, and efficient, revolutionising traditional financial models.

Echoing this sentiment, the Word Economic Forum (WEF), released a report stressing how blockchain can reshape the global financial system, highlighting the importance of deep collaboration between incumbents, innovators and regulators. According to the report, the main areas ready for disruption include international payments and wire transfers, rehypothecation, the repackaging of mortgages and compliance reporting of banks to regulators.

In fact, the transformation has already started; recent developments in trade finance from R3, a leading consortium with over 55 of the world’s largest financial institutions, has successfully completed two prototypes that demonstrate how distributed ledger technology is a digital alternative for a faster, more cost effective and reliable trade financing system.

As long as blockchain remains in the spotlight, we will continue to see of new and innovative applications developed within the financial services industry. Watch this space.