Author Archives: ontheblock1

10 Firms Join to Create Code of Conduct for Digital Asset Markets

Ten financial services and technology firms leading developments in the digital asset and blockchain space have joined together to create the Association for Digital Asset Markets (ADAM) to establish a Code of Conduct for emerging digital asset markets.

US-based ADAM will proactively seek comprehensive standards for digital asset market participants. The group, which includes BitOoda, BTIG, Cumberland, Galaxy Digital, Genesis Global Trading, GSR, Hudson River Trading, Paxos, Symbiont and XBTO, says it will work with current and former regulators to provide rules for the efficient trading, custody, clearing and settlement of digital assets.

Future guidelines will encourage professionalism and ethical conduct by all market participants, increase transparency by providing information to regulators and the public, and deter market manipulation, the group stated.

Duncan Niederauer, former Chief Executive Officer of the New York Stock Exchange and ADAM Advisory Board Member, says, “Rules are fundamental to the development of any market. Over 200 years ago, market leaders came together to draft rules that led to the creation of the New York Stock Exchange. The advent of digital assets requires a similar effort; one that will clarify existing rules and give both investors and regulators the confidence necessary to sustain this market. I applaud the firms leading the ADAM initiative and look forward to advising them on standards that will enable this market to thrive.”

ADAM’s Code of Conduct will include guidelines for market integrity, risk management, KYC and AML, custody, record keeping, clearing and settlement, market manipulation, data protection, and research, among other topics.

ADAM plans to add new members and will announce its officers in the coming months. It will maintain offices in New York and Washington, DC. Participating organisations include trading venues, custodians, investors, asset managers, traders, liquidity providers and brokers.

Crypto and FX: More Alike than We Think?

FX industry veteran and Profit & Loss 2012 Hall of Fame inductee, David Ogg, reflected in a recent video interview on how the rapidly evolving crypto markets resemble the FX markets of the past.

“It’s like FX in the 1980s,” said Ogg, who is currently the head of FX and trading venues at OTCXN, before adding,“The front-end technology is pretty primitive.”

By contrast, he said that OTCXN has developed “cutting edge” technology in terms of how it displays liquidity, offering visual tickers that enable traders to get a visual representation of what is happening in the market with just a glance.

Ogg also noted that the speed of trading continues to be slow in the crypto space, while there are significant challenges regarding settlement that OTCXN has sought to address.

“A lot of technology has been retail focused, so some of it’s slow, the whole process needs to be ramped up. FX trading took off with prime broking, it allowed the buy side to come in and trade heavy amounts,” said Ogg.

He added that by offering instantaneous settlement, OTXCN will enable the crypto space to accelerate in much the same way that the FX space did after the introduction of PB.

“There’s a lot of similarities,” said Ogg.

The full video interview can be watched here: 

https://www.profit-loss.com/articles/news/videos/crypto-and-fx-more-alike-than-we-think

CLS Goes Live with DLT Netting Service

CLS’s new payment netting service based on distributed ledger technology, CLSNet, has gone live with Goldman Sachs and Morgan Stanley.
In a release issued today, CLS says that six additional participants from North America, Europe and Asia have committed to joining the service, although the only one it names is Bank of China (Hong Kong), and that the onboarding of several other market participants is planned in the next few months.

CLSNet has been designed to standardise and increase the levels of payment netting in the FX market for trades not settling in CLSSettlement. By standardising and automating the calculation of payment netting, CLSNet aims to reduce costs for market participants and increase liquidity in FX markets. The service was built in conjunction with IBM and runs on the Linux Foundation’s Hyperledger Fabric blockchain framework.

Commenting on the launch, Alan Marquard, chief strategy and development officer at CLS, says: “We are excited to be launching CLSNet, the first service of its kind to be operated on a DLT platform. Further, this offering demonstrates how we are using our unique, trusted position at the center of the FX market to solve industry challenges. A standardised and automated payment netting process will lead to improved intraday liquidity, reduced cost, improved operational efficiencies and ultimately support business growth.”

Adam Josephart, managing director, fixed income division, at Morgan Stanley, says: “CLSNet will deliver the standardisation and automation needed for non-CLS settled transactions. We are delighted that Morgan Stanley is one of the early adopters of the service.”

Barry Lo, general manager, bank-wide operation department of Bank of China (Hong Kong), comments: “We take great pleasure in participating in CLSNet, which will enhance operational efficiency in trade matching and payment netting for non-CLS settled currencies such as CNH, and strengthen our risk management. This underscores our strong commitment to driving Fintech innovation and represents a major step forward in the application of new technology in our businesses.”

Marie Wieck, general manager, IBM Blockchain, says: “Since we first pioneered the use of blockchain in the FX market nearly three years ago, IBM has been working hard with CLS on the development and deployment of CLSNet as the first post-trade production deployment of blockchain technology in a global market utility. With CLSNet now in production with two of the world’s largest banks, for a major market function, it is a testament to the ongoing maturity of blockchain technology and the value that it can deliver in practice.”

DrumG: Using Tomorrow’s Technology to Solve Today’s Problems

It is something of an attention-grabber when someone who builds solutions on distributed ledger technology (DLT) says, “We are not a blockchain company”, however that is exactly how Tim Grant, co-founder and CEO of DrumG, starts our conversation. “We are a company that builds on blockchains; not one blockchain, but the right one – we build ledger appropriate solutions,” he explains. “We would never say ‘our blockchain is better than yours’. What we say is ‘our ability to choose the right blockchain and build on it, is better than yours’ – there’s a significant difference.”

DrumG, which was formed in mid-2017, has recently released its first product, Titanium Network, and will shortly add a second. Titanium is built on Enterprise Ethereum, “Our analysis showed it was the best fit” and seeks to, as a recent presentation by the company put it, return control of OTC consensus data to the banks”.

What this means in reality is the opportunity for banks to access consensus market data at a fraction of the cost – data, as Grant is keen to point out, that these banks actually generate in the first place. “Banks are paying millions of dollars for an end-of-day or end-of month pricing service that takes their data, collates it, and redistributes it back to them,” he observes. “Basically they are paying all this money for a glorified spreadsheet that they use to calculate regulatory capital and client valuations.

“We looked at this and it was such an obvious ‘get it done’ opportunity,” he continues. “We initially partnered with Credit Suisse, but we are now going to the next group of banks to get them to join the network. At a fraction of the cost, these firms can securely access the same data in an auditable fashion.”

As one example of the efficiencies to be gained in one small area, Grant points to the “challenge process” around consensus data. “Firms can now challenge the consensus data if they feel it is inaccurate,” he explains. “Previously this was done by email and could take some time, but with all the data on one solution this can happen in real time – and it is fully auditable.”

The big change that has allowed DrumG to build such a solution has been the advance of Enterprise Blockchain – a development that was in its infancy just six months ago. Reiterating the ledger appropriate ethos of the firm, Grant explains that it has created a rigorous evaluation framework, which involves involves more than 50 measured criterion, both qualitative and quantitative. “This allows us to ensure the right solution is deployed to overcome the specific challenge,” he says. “Firms should not be looking to develop solutions to solve complex problems based upon one Enterprise Blockchain, they should take a more targeted approach, which is where, with our pedigree, we can help them.”

Interestingly, Grant believes that the cost reductions, while significant – DrumG claims operational spend can be reduced by up to 10 times – are the least exciting part of the solution, instead he points to the opportunities to scale. “Everyone is more aware than ever about the value of their data and the need to control how it is used,” he says. “They want the ability to analyse the data in more ways and quicker fashion and that is what Titanium gives them. As more firms join the network the value increases.

“Firms on the network can conduct analyses to help them better understand their trading operations and because it is much more cost efficient, what was previously the preserve of a few firms can now be accessed by anybody on that network,” he adds.

While Grant describes the firm’s first solution as “pretty straightforward”, there is no denying it offers the opportunity for significant efficiency gains, thanks to blockchain technology. The idea was identified when he was cutting his teeth on blockchain at R3, where he was running the R3 Lab and Research Centre. “We were helping banks figure out real solutions using DLT and it was then we identified the gap in the market,” he says. “We did the analysis of how many brokers’ data was required to get sufficiently good enough coverage and to get the biggest bang for your buck and it was obvious that the right place to start was in FX. It works across asset classes of course, but our analysis showed that you need a minimum five or six brokers’ data to get a good enough observation and that nicely matches the top group of dealers in the FX market. By starting in FX we are able to get data from a relatively small group of institutions that handle something like 70% of the market volume.”

Breaking Down Silos

Without doubt the network creation aspect of DrumG’s value proposition is the key, however so too is its ability to break down silos. As Grant puts it, “A lot of value can be found at the intersection of previously walled gardens.”

Essentially the transparency and silo-less approach brought by DLT-based solutions plays to the theme of a converging world – one in which solutions have to be multi-faceted and mutualised. “This is a new paradigm, one without silos,” Grant posits. “We are enablers, we don’t claim to do things better, we claim to do things differently – new business models, new ways of doing things. We are empowering our network clients by giving them the choice over where their own data goes, who can see it and use it, in a framework within which they get paid for its use.

“This framework is transparent enough that users know they are getting paid a fair price for a fair job – it’s the trust network effect,” he adds.

In terms of scalability, one area that may be of interest to banks struggling to deal with expanding the distribution of their single dealer platforms is the ability to deliver products via a DLT framework. Grant acknowledges this was not something DrumG initially looked at when it first studied the deployment of DLT in financial markets, but he sees opportunities. “Individual products from a bank’s platform can be delivered to clients via DLT,” he observes. “There are incredible opportunities available when you have the network.”

The scaling opportunities are also there for DrumG, which is already working on a second solution that provides a post-trade reconciliation network for market participants such as hedge funds and prime brokers. Again, reiterating DrumG’s ethos about the firm building in a ledger appropriate fashion, the evaluation process is currently underway to select the right technology (and the early whisper is it may be based upon R3’s Corda Enterprise platform), and it will enable users to access a validated, auditable and permissionable view of transactions, on which they can conduct their post-trade operations.

As the firm builds more networks, Grant stresses that they will all be interoperable, meaning the network effect is potentially multiplied many times. “If someone is on one of our networks they should be on all of them,” he observes.

The word “disruption” is over-used in the financial markets industry, however this does seem to be a case when its use is appropriate. “Titanium was delivered in months, which we believe demonstrates the value we can deliver,” says Grant. “There are now more than 20 of us at DrumG and we have a deep knowledge of both financial markets and the technology that can help them operate more efficiently.

“Our ethos is to apply intellectual rigour and objectivity to the choice of technology needed to deliver real solutions that deliver value to our network clients,” he adds. “Too often firms seek to solve yesterday’s problems with today’s technology – we believe in using tomorrow’s technology to solve today’s problems.”

OTCXN Launches Crypto Block Trading Venue

OTCXN say has launched its OTC Block Trading venue for crypto trading – what it says will be the first of several trading venues that will be launched for institutional-only digital asset trading.

After a period of successful testing, the venue is now open to all clients with accounts at custodians on the OTCXN network, including Kingdom Trust and Prime Trust, both of whom are regulated US entities that offer custody services for fiat and cryptocurrencies. Trading on the venue includes fiat-for-crypto, crypto-for-crypto and fiat-for-fiat, the firm says.

“We are extremely pleased to announce that our institutional clients are now trading with each other on our OTC Block Trading venue,” says Rosario Ingargiola, CEO and founder of OTCXN. “Clients can now trade without risk to their counterparty and without waiting for settlement payments to hit their account or wallet. The immediate re-tradability of crypto assets with no public ledger transactions means more trading opportunities for our clients.”

In the OTCXN solution the cryptocurrency is always held in deep, cold storage, and neither side of the trade ever sends funds or crypto first. An immutable record of all transactions on a proprietary blockchain layer brings transparency and provability to facilitate the audit, fund administration and regulatory requirements of institutional clients.

Later this year, OTCXN says it will be launching its matching engine, LiquiMatch, as both a dark pool and lit central limit order book-style exchange for cryptocurrencies. It says clients will be able to access liquidity across all OTCXN trading venues via a single account at a custodian. It adds it also plans to launch a marketplace for coin lending and leverage financing in early 2019.

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