By Michael del Castillo
ICAP has built what it refers to internally as a ‘Rosetta Stone’ for trades.
That description refers to an ancient hieroglyphic text that brought together several languages from antiquity, and opened a pathway to understanding messages encoded in Egyptian ruins.
ICAP invokes this term to describe its new system for managing securities post-trade workflow, one it has now encoded into a single business process. It’s designed to let any buyer transact with any broker across a wide range of possible trades.
To use the current blockchain terminology, the company has written what they describe as an elaborate smart contract. So, it only makes sense the next step would be to introduce an actual blockchain in the system.
Since the interdealer broker’s Post Trade Risk and Information Services division announced in March the successful test of a blockchain prototype using multi-asset messaging and its Harmony matching network, that’s exactly what they’ve been doing.
In conversation ICAP’s CEO of Post-Trade Risk and Information, Jenny Knott, explained why the elaborate post-trade system is being built to use a variety of blockchains.
Knott first proposed the idea of building a parallel blockchain service that would operate alongside ICAP’s automated workflow shortly after she was appointed CEO in August 2015, after spending eight years at Standard Bank.
Assembling a team
Three months after Knott was hired, ICAP’s investment branch, Euclid, introduced her to the newly formed private blockchain firm, Axoni, and the process of exploring a distributed ledger prototype began.
By December, David Thompson, the chief operating officer of UK-based ICAP’s subsidiary Traiana, had been introduced to Axoni and was tasked with helping build a post-trade prototype.
From Traiana’s 350 employees, Thompson selected a team of seven, and by February of this year had completed a test that converted trade data from banks into smart contracts that could be processed via a network of nodes.
Beginning with foreign exchange trades within Traiana, the corporation is now building out a blockchain system that runs parallel to its existing re-imagined business process, which it calls the Transaction Lifecycle Center, but which doesn’t yet interact directly with customers.
Smart contracts with value
Currently, Traiana’s team is working with Axoni to troubleshoot the blockchain integration and expand the offering to areas other than foreign exchange.
But, the team must also show its clients that the service isn’t just a new toy and that it brings real value.
“When you’re working with blockchain what you’re actually asking the client to do is trust a new golden source of information,” said Thompson, adding:
“To earn that trust it’s a natural demonstration that the old and the new do the same thing but more efficiently.”
From 2015 to 2016, the subsidiary’s volume without blockchain integration increased 183% and currently transacts $1.5tn daily from about 3 million trades on its Harmony network, according to numbers released Tuesday.
Changing with the times
As part of the ongoing tests, Traiana is working with one of its 500 partners to work out the kinks in the system.
A beta version of the smart contract-enabled business process is expected to be ready in the first half of next year, with a full release forecast for the end of 2017.
Though ICAP’s early-stage investment firm, Euclid Opportunities, is invested in blockchain firm Digital Asset Holdings and ICAP is already working with Axoni, Knott said it’s important for her company to keep its options open.
Knott said there are still many unanswered questions as to whether there will be one blockchain that dominates the financial sector, or a series of competitors.
In the meantime, Knott’s company is busy preparing its business process for eventual blockchain integration and helping educate regulators about its work. Last week, Knott addressed a group of European regulators in Brussels as part of an educational meeting.
Knotts:
“The critical point will be making sure that we are agnostic of potential technologies. Making sure that we are re-engineering the business process so that our banks are instantly agreeing, validating that transaction, making it golden, and making it a legally binding transaction through a digital signature. That is what’s important.”