This is not a noise, this is serious! Blockchain to become integral to FX trade processing as former Traiana CEO leads the way
A 30 year career at senior director level at Citi, Deutsche Bank and Traiana has set Andrew Coyne’s new Cobalt DL venture as the first blockchain entry into post-trade settlement. Mr Coyne looks at how it will provide a uniform platform and reduce cost, and how his vast expertise is relevant. Citi, the world’s largest FX dealer, has signed to use the system’s beta, so this is the first serious blockchain application in eFX
So much noise has surrounded Bitcoin over the last five years, most of which has been exactly that – sensationalist diatribe emanating from the vocal outlandishness of the mavericks and anarchists who lauded the virtual currency as a peer-to-peer rebellion against the institutional banking and electronic trading technology establishment, as well as against national governments and central banks.
The result? Not much, other than volatile price changes, no stability or security, a litany of e-wallet hacks, website seizures and exchange demises, with a few jail sentences along the way.
The hype has died down, and Bitcoin is still considered a fringe enterprise, with no real mainstream appeal, and would have likely fallen by the wayside some time ago if it was not for one intrinsic component – blockchain.
The first blockchain was conceptualised by Satoshi Nakamoto in 2008 and implemented the following year as a core component of the digital currency bitcoin, where it serves as the public ledger for all transactions.
Through the use of a peer-to-peer network and a distributed timestamping server, a blockchain database is managed autonomously and the invention of the blockchain for Bitcoin made it the first digital currency to solve the double spending problem. The Bitcoin design has been the inspiration for other applications, mostly with regard to institutional use of distributed ledger technology.
Whilst Bitcoin has become an overused word and has in many cases become a tiresome side issue which has no relevance, vast institutions including Goldman Sachs, Merrill Lynch, PriceWaterhouseCoopers and various venture capital groups have invested several hundred million dollars into the development of the blockchain technology which is inseparable from Bitcoin, thus the technology start-ups that initially set out to develop digital currency technology are now the darling of vast financial institutions and seasoned commercial investors due to their ability to adapt blockchain database technology to automate specific aspects of banking and create radically more efficient systems for financial markets infrastructure in future.
Until now, we have seen start-ups with vast venture capital investments, an example being 21C, a Silicon Valley based Bitcoin start up that raised a record breaking $116 million two years ago. But where is its pedigree and what is its progress in the institutional trading world?…. Anyone hear any of Mountain View’s finest tumbleweed blowing across the bay?
The trouble has so far been the lack of credentials, and the lack of senior level expertise within the mainstream industry by the leaders of these start ups to be able to integrate that technology successfully and make it part of the accepted market infrastructure…
It is likely that those who noticed the launch of London-based start up Cobalt DL may have experienced the glazing over of their eyes as yet another oddly named blockchain developer was the subject of soundbites on mainstream television news stations.
Understandable, however those in the know will have noticed a few very important differences between this and the usual fly-by-nights that are a big wow today and gone tomorrow.
Cobalt DL (DL stands for Distributed Ledger), is not just any start up, and has massive credentials with its leadership being a pinnacle of FX trade clearing, post-trade processing and electronic execution expertise.
Andrew Coyne, who is CEO of Cobalt DL, will likely be remembered by those, including myself, who remember him very well as CEO of Traiana, the cross-asset post-trade processing and electronic clearing division of British interdealer broker ICAP, which was founded in Tel Aviv in 2007 by industry veteran Gil Mandelzis, along with Roy Saadon and James Chrystal before being bought by Traiana in 2007.
In May of 2012, Andrew Coyne was appointed chief executive officer, Mandelzis as executive chairman.
Mr. Coyne left the firm in February 2015 quietly, and embarked on the estblishment of Cobalt DL, whereas Mr. Mendelzis went on to become head of EBS BrokerTec Markets. Mr. Coyne was replaced then by Nick Solinger.
During Mr. Coyne’s leadership six major banks signed up to Traiana’s clearing network, known as Harmony CCP Connect, to manage the connectivity and workflow required to clear over-the-counter FX derivatives. The banks were Citigroup Inc., Bank of America Merrill Lynch, Deutsche Bank AG, JP Morgan Chase & Co., Morgan Stanley and UBS AG
Before joining Traiana in 2012, Mr. Coyne, who goes by the name Andy, and who I remember to be a very personable and professional institutional technology figure with substantial expertise, spent 6 years at Citi, where he was Head of FX Prime and G10 eCommerce between January 2006 and July 2012.
During that period, Mr. Coyne increased fee revenue year on year from $6 million in 2006 to $50 million by 2011, which raised the margin to 50%.
He also won 160 clients and diversified the client base to cover hedge funds, retail aggregators, high frequency traders and broker dealers, and was instrumental in the creation of the ‘CitiFX Click’ user interface which was adopted by the wider Citi FX franchise, for which he then built a real-time margin engine and developed a credit program for rapid client on-boarding.
These are real institutional credentials and not the stuff of the upstart new kids on the block(chain!)
Between 1999 and 2005, Mr. Coyne spent six and a half years as VP and Global Head of FX Prime Brokerage at Deutsche Bank, based in London, where he led the FX business integration of Bankers Trust to Deutsche Bank. Mr. Coyne came to Deutsche Bank as part of that exact integration, as he was Global Business Manager for FX at Bankers Trust for 11 years between 1988 and 1999.
Cobalt DL has remarkable credentials, and Mr. Coyne expects that it will now go on to simplify the way that FX is traded, and will become a central part of the infrastructural ecosystem.
Mr. Coyne says that Cobalt DL set out to focus on cost reduction and risk reduction for the institutional FX market. “There is a lot of investment in the FX market into execution but little into post-trade, which hasn’t really changed in decades” he explained last week.
“We thought post trade was worth a look, and banks are more focused on cost now than they ever have been so cost and risk reduction is a prime consideration to the bank so we thought that a shared distributed ledger is a way that we could make this happen. It is a new concept but it could have bene done a long time ago because the reality is that FX is a very good use case for a shared infrastructure.” – Andrew Coyne, CEO, Cobalt DL
“With regard to making this sector less fragmented if firms adopt this form of settling trades, Mr. Coyne said “I think the industry gets an opportunity to create an effective utility with distributed ledger, because banks don’t really make money from post-trade settlement. It is a cost they have to bear, tens of millions of dollars worth of cost, therefore it is better to create a utility whereby flexible infrastructure can normalize transaction data across the industry so that everyone is working from the same common denominator” he said.
When looking at using FX as a starting point and then translating this technology into other asset classes, Mr. Coyne said “The principles are the same whatever asset classes you look at, however it is very important that in order that these concepts can translate to other asset classes, you have to have people who understand how the industry works.”
“I have been in institutional FX for my whole career, and have a very clear idea of what has to happen therefore I would say that the main expertise is important, and I have a clear idea of how transactions behave in their life-cycle from the beginning to finality” he said.
“There is a lot of money going into fintech at the moment but VCs are now looking for meaningful use cases which will be game changers and revolutionize ways in which markets operate. this is an infrastructural play that we are working on and it is a game changer in that it is more utility-like. Banks cannot really be doing what they are currently doing which is running multiple ledgers” said Mr. Coyne.
Concluding, he explained that in order for this to gain a stronghold in the post trade settlement sector, critical mass is vital. “It is now less theoretical than it used to be, and winning Citi as a client and investor is an endorsement of what we are putting together. We have other institutions joning the beta but critical mass is key to all shared ledger which will get the most out of it and drive cost down.”