Major Developments in Capital Markets - Part 1
Banco Santander's blockchain bond, the Members Exchange, the FXCore back-office solution, HSBC's blockchain-based letter of credit, and Vanguard's peer-to-peer Forex trading platform are some of the major developments affecting the capital markets space in 2019.
BANCO SANTANDER ISSUES END-TO-END BLOCKCHAIN BOND
- The Spanish bank Banco Santander has issued a $20 million end-to-end blockchain bond, making it the first institution to use a public blockchain to manage all aspects of a bond issue.
- Santander used the Ethereum blockchain not only to represent the $20 million debt issuance, but it also settled the transaction with digital tokens representing cash held in a custody account.
- This is a significant development because it streamlines the entire process of issuing securities on a blockchain. Other banks have previously issued securities on a blockchain while settling the trade through an analog legacy system, which makes the entire process much more complicated.
- Santander said that such a bond significantly reduces the number of intermediaries involved in a transaction, making the entire issuing process faster and cheaper.
A GROUP OF LEADING FINANCIAL SERVICES COMPANIES PLANS TO LAUNCH WORLD'S FIRST MEMBER-OWNED EQUITIES EXCHANGE
- Bank of America Merrill Lynch, Charles Schwab, Citadel Securities, E*TRADE, Fidelity Investments, Morgan Stanley, TD Ameritrade, UBS, and Virtu Financial have joined forces to launch MEMX or Members Exchange.
- MEMX will be the world's first exchange that will be owned entirely by market participants, or the companies that formed the group in this case.
- The companies state that, if successful, MEMX will greatly increase competition in capital markets and reduce fixed costs for all participants.
- The development is significant because it has the potential to align the interests of individual and institutional investors with other market participants.
KOOLTRA CREATES A BACK-OFFICE SOLUTION FOR FX BROKERS IN THE CLOUD
- Kooltra, a Canadian SaaS firm launched its FXCore solution. FXCore is a cloud-based platform that provides back-office functionality to Forex brokers.
- The platform enables data storage in the cloud, and it also offers other infrastructure facilities. This enables brokers to focus more on their clients without worrying about the functionality of their IT systems.
- Kooltra has already entered into contracts with several FX brokers that will use FXCore. The brokers will gain access to a suite of data analytics solutions that enable them to track total revenue, leads, FTDs, conversion rates, deposits and profit, among other things.
- Kooltra claims that its FXCore platform is perfectly positioned to disrupt the Forex industry. It stated that FXCore allows its broker clients to start running their FX businesses in as little as two weeks. In the past, starting a Forex brokerage involved entering into multi-year, multi-million dollar contracts for platforms that take months, if not years to implement.
HSBC COMPLETES THE FIRST YUAN-DENOMINATED LETTER OF CREDIT TRANSACTION ON BLOCKCHAIN
- HSBC bank has successfully processed the first yuan-denominated blockchain letter of credit. The transaction involved the export of LCD parts from Hong Kong to mainland China.
- The bank used the Voltron trade finance platform, developed by eight banks including BNP Paribas, and Standard Chartered along with HSBC.
- HSBC said that it can reasonably expect to have a fully-working solution by the end of 2019, or early 2020.
- If successful, the blockchain letter of credit could significantly reduce transaction costs, as well as increase processing speeds. This particular transaction was completed in 24 hours, while it would usually take five to ten days using conventional means.
VANGUARD PILOTS A SOLUTION THAT COULD DISRUPT THE POSITION OF BANKS IN THE FOREX MARKET
- Vanguard started testing a product that allows asset managers to trade currencies directly, completely bypassing investment banks in the process.
- If successful, the peer-to-peer trading platform would "mark a leap in the evolution of the FX market." This is mostly due to the fact that big banks, acting as intermediaries, take a large cut from each transaction.
- This development is significant because the $6 trillion currency market is currently dominated by big investment banks like JPMorgan Chase & Co, and Vanguard's platform is aiming to eliminate them from Forex transactions.
- Analysts think that the blockchain-based peer-to-peer platform would have even more of an impact on swaps and forwards than on spot trading. This is because matching traders with opposite interests is much more difficult when trades need to be executed instantly, as they do in spot markets.