to be made across the world,” said Jim process thousands of foreign exchange McCarthy, Executive Vice President of trades and to give customers access as innovation and strategic partnerships at participants in a DLT-based system so Visa, in prepared remarks. that, initially, institutional investors can more transparently track and value deals Capital markets “Visa is leveraging Chain Core to create in the spot market. NEX subsidiary, Trai- a permissioned blockchain network to ana subsidiary, which acts as a messaging DLT is even beginning to invade the enable their financial institution clients hub for $2tn of forex, fixed income and capital markets. IBM and Japan’s SBI to directly exchange value on behalf of swaps deals, is developing a combination Securities revealed last year that they their corporate customers,” wrote of smart trade contracts and a blockchain are working on a blockchain-based Chain’s cofounder and CEO, Adam product with the eventual aim of replac- bond trading platform using the Ludwin, in a blog post. “This network ing their current post-trade system. Hyperledger Fabric. allows institutions to move value with greater speed, predictability, and secu- “As an innovative technology, block- rity than is possible today.” chain has the potential to revolutionise Competitors like SWIFT, of course, have ways businesses work together with their questioned the demand for real-time “Visa is leveraging Chain ecosystem of trading partners,” said payment pointing out that corporate Takeshi Fukuda, director of IBM payers actually want to pay as late as pos- Core to create a permissioned Research Tokyo, in a statement. “The sible. The counter argument is simple: if blockchain network to enable technology establishes accountability you want to pay on day 30, then real- and transparency while streamlining time payments let you do just that, rather their financial institution clients business processes.” than having to pay on day 27 and allow to directly exchange value on But for treasurers the key development three days for the money to arrive within will be the ability able to issue bonds on a the 30-day limit. behalf of their corporate blockchain-based digital asset creation And it’s not just bank networks that can customers.” tool. One example is three-year-old be used – with or without blockchain. startup BlockEx. After developing a Western Union recently participated in white-label cryptocurrency brokerage a funding round for Digital Currency platform to sit on top of existing Group (DCG), a firm that collaborates exchanges, BlockEx has built an exchange with financial institutions to develop use for “the issuance of digital assets including cases for DLT. One is to improve the Another FX market giant, Citi, in bonds, equities and syndicated loans [that core migrant remittance service, But December 2016 made an undisclosed will] collapse origination issuance, asset another is to leverage the 100,000 investment in Cobalt DL, a London servicing, exchange, clearing, settlement SMEs that make payments through the startup also developing a DLT solution and reporting into one platform. By tem- service to create Western Union Edge, a to simplify foreign exchange trading. plating and streamlining the legal process B2B payments network. Right now, the Cobalt has also attracted two of the big- it becomes possible to reduce the price of service is available in a dozen countries gest traders of FX, Citadel Securities and origination up to 75% and time to origi- and does not use DLT, but given the XTX Markets, as well as 22 banks and nate and issue can be reduced to days.” In financial firms. The firm believes it can theory, this could ultimately squeeze out relationship with DCG and the possi- cut the cost of FX trading by 80%. The bank syndicate functions. bilities of blockchain technology to cut system is to go live in the third quarter costs, increase security and boost visi- and runs on technology supplied by Setl, The platform enables issuers to create bility – not to mention the existence of a UK blockchain software developer, smart contracts that specify coupons, FinTech competitors using DLT in the and data from Northern Ireland-based payment dates and maturities, with the remittance space, such as Bloom First Derivatives. flexibility to create retail-friendly payout Solutions – and it seems likely that the structures such as monthly or even daily service will utilise DLT at some point. Other key FX banks are members of coupons. The digital assets are sold Ethereum’s Enterprise Ethereum Alli- directly to investors, cutting out bank Foreign exchange ance which has also executed a trial spot intermediaries and potentially slashing Some of the largest names in FX have trade using an adaptation of Ethereum issuance costs by more than half. made significant commitments to DLT, as the settlement layer. And Goldman Sachs patented a permissioned block- It allows a company to use the asset crea- focusing on improving trading efficiency. chain concept to achieve much the same tion tool, pick documentation and raise DLT should be ideal in this kind of mar- thing and which explicitly allows regula- money in a single day, aims to settle trades ket, in which so many counterparties – tors to access the database and provides within 30 seconds and creates a secondary buyer, seller, broker, clearer, and others functionality to comply with anti-money market that generates an indelible history – hold records of the same transaction. A laundering (AML) regulation and know of buying and selling activity using dis- shared ledger updated in real time and your customer (KYC) laws. tributed ledger technology. visible to all should slash transaction times and costs. None of this is directly available to treas- Perhaps the most exciting thing about urers, though the very largest MNCs the concept is that it brings the benefits of For this reason, NEX Group, formerly the rival some hedge funds in their FX deal- capital markets to SMEs because of the interdealer broker ICAP, has invested (via ing and so may gain direct access. The reduction in cost, time and complexity. its Euclid FinTech investment arm) in real benefit for most corporations will and medium-sized enterprises eyeing Axoni, a provider of distributed ledger simply be in faster, more transparent and US$10m-$50m issue sizes, which are technology for the financial services much cheaper FX dealing. 2017 may largely shut out of the capital markets industry. NEX aims to use DLT to well be the year this starts to happen. due to syndication costs that average 34 // TREASURY PERSPECTIVES 2017/2018 www.eurofinance.com