FX: Blockchain seen as the solution to enhanced post-trade efficiency

Few market participants would deny that most of the investment in electronic FX trading has been about winning the trade rather than settling it.

Money has been spent on improving the post-trade element of the life cycle, acknowledges Frederic Ponzo, managing partner at capital markets consultancy GreySpark Partners, but reckons that investment in front-office systems has been at least three or four times higher.

The amount allocated to the back office, he argues, has been insufficient to properly decommission obsolete or less-relevant platforms. The result is stubbornly high operating costs due to duplication and limited automation.

Back-office processes that evolved to support nascent electronic trading were designed to handle low volume, large tickets, but as ticket sizes fall, post-trade infrastructure is unable to keep up.

That is also the view of Adrian Patten, co-founder and chairman of Cobalt, who says that incumbent post-trade providers rely on cumbersome, manual processes and disconnected legacy technology.

“As much as 80% of back-office time is spent purely on reconciling systems,” he says. “Complex and opaque cost structures have become the norm, with trading institutions facing multiple licence fees, messaging charges, IT overheads and staff costs.”