ICAP looks to process forex trades on blockchain

ICAP is preparing to process thousands of foreign exchange trades on blockchain technology amid signs the emerging standard is encroaching on global markets.

The London group, to be renamed NEX Group from January, will supply the code to customers in March so institutional investors can more transparently track and value deals in the spot market, which trades $1.7tn a day.

At the same time Euroclear, one of the world’s largest settlement houses, and its partner Paxos, a US financial technology group, have completed a 2-week blockchain pilot for more than 600 test deals in the London bullion market.

The projects mark further significant steps in the advance on markets of blockchain technology — an electronic ledger with records stored in “blocks” — which aims to automate the complex networks of trust and verification on which modern finance sits.

Banks see the technology as a way to cut costly back office systems, as well as unify their data to meet rising demands on trade reporting and customers’ portfolio valuations. 

But many have found the blockchain technology difficult to put into practice and are increasingly turning to infrastructure operators, many of whom already maintain the plumbing behind billions of dollars of deals.

ICAP, in conjunction with US technology group Axoni, will utilise its Traiana subsidiary, which acts as a messaging hub for $2tn of forex, fixed income and swaps deals. It is set to become a key part of NEX as it sheds the brokers that built ICAP and focuses on digital market infrastructure. 

“By the end of March clients will be able to access their own node on the blockchain. We create a digital record in a cloud vault and also on the blockchain,” said Jenny Knott, chief executive of post trade risk and information at ICAP.

“We are building the Nex technology platform and licensing to the Traiana legal entity, so that we can run both systems in parallel. Over time we will be able to turn off the old system‎.”

Traiana reconciles transaction, reference, market and portfolio data before it is sent out, either to regulators, clearing houses or back to financial institutions themselves. In the blockchain the trading data acts as a “genesis block” and the encrypted details are passed to other parties for deciphering and verification. 

Ms Knott said enthusiasm had been particularly high among institutional investors such as hedge funds and asset managers. 

Brussels-based Euroclear, which houses more than €27tn of bonds, equities, funds and derivatives for customers, is exploring with Paxos how to modernise the market for gold. Trading of the precious metal is bilateral and decentralised but banks use large amounts of capital in the settlement process. Société Générale, Citi and Scotiabank all participated in the trial. 

“It was a success as we were able to get real engagement with real customers to use a real product,” said Charles Cascarilla, chief executive of Paxos, which was formerly known as ItBit. He added there would be more pilots before the service formally launched next year.