9th Gear at TradeTech FX USA 2022: Ending settlement risk with blockchain

Rick Steves

Finance Feeds was at the TradeTech FX USA 2022, which took place at the Eden Roc Resort in Miami.

The conference brought together the leading buy-side heads of FX and portfolio management in the return to face-to-face events since the pandemic began.

Contrary to what would be expected out of a pandemic-ridden world economy, the FX industry didn’t slow down. Quite the opposite, in fact, and participants gathered in Miami to learn and discuss the news, innovation, and other pressing matters in the sector.

FinanceFeeds Editor-in-Chief Nikolai Isayev had the chance to set up an interview with Maryanne Morrow, CEO and Founder at 9th Gear Technologies, the B2B marketplace that enables Same-Day FX Trading & Settlement coupled with On-Demand Payment Liquidity.

Settlement risk is unnecessary

Maryanne praised the organization as an opportunity to exchange a lot of information in all things FX, including transaction-cost analysis (TCA), market data, cryptocurrencies, and settlement risk.

The latter – settlement risk – is the one issue that Ms. Morrow considers to be unnecessary. “We can solve this problem”.

The 9th Gear founder first looked at the blockchain ecosystem in 2009 and found it to be mostly about overthrowing monetary authorities.

In 2017, however, much had changed and at a second look, Maryanne noticed that whoever can harness the technology correctly can eliminate the breaks in the reconciliation that are plaguing the back office, she said.

“Cryptographic methods are the perfect solution for the settlement problem which has been plaguing us since the 1970s”.

The FX industry is still using antiquated technology to power transactions, but blockchain does it near real-time. “Why wait two days?”

9th Gear is powered by Ethereum’s Quorum

9th Gear wants to power the transactions of corporations, hedge funds, and the interbank market through its platform developed on Quorum, the enterprise/banking solution of Ethereum.

But why Ethereum? Why not XRP, which was designed precisely to power FX transactions with maximum speed and minimum cost?

“What they’re doing is great but we’ve taken on a very different task. We’re using cryptographic methods but we’re not moving anything in and out of cryptocurrency. That just adds risk and volatility because you have to have three transactions correct: transaction you’re doing. but also going into crypto and coming back out. That just adds extra volatility and risk and we’re mitigating risk”, she explained.

“So we’ve decided to create a private permissioned blockchain using Quorum. We could have created our own blockchain but why bother?”, she continued, adding that Quorum is an enterprise-oriented blockchain with control mechanisms based on the Ethereum network.

Quorum was created by JP Morgan and has gone over to ConsenSys to look after it. “We’re very well known in the ConsenSys community and it really allows us to put our transactions through with safety and security”.

Compliance always as we move into 24/7 cycle

Regulation always comes to mind when handling innovative technology, especially when it is powered by blockchain as the digital asset space is under greater scrutiny. But of course, using Ethereum-based technology and trading ETH are two quite different things.

“It’s very well known in the FX community that it’s not regulated by the CFTC, Fed, Treasury or the SEC. It’s a very narrow path to enter the market. We spent a lot of time with our securities lawyers. We have someone from the SEC, a former regulator on our advisory board, and a couple of people who have prosecuted crimes at the FBI and the Office of NYSAG.

“We want to make sure we comply with the Office of Foreign Assets Control (OFAC) and all different rules and we’ll be signing the FX Global Code once we’re ready to go into the market. We’re very close to doing that.”

As we reached the finish line, Maryanne Morrow stressed that settlement risk is unnecessary and explained how 9th Gear can solve the issue.

“We’re fixing this problem in the pre-trade environment. Instead of “trade then fund”, we “fund then trade ” using intraday liquidity. So, we’re solving this problem upfront, so that once it goes to trade it can immediately settle.”

The timing of Maryanne Morrow and 9th Gear is perfect as the next big trend appears to be the change to the 24/7 settlement cycle.

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