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How blockchain automates the OTC derivatives post-trade process

The Blockchain Xdev led the development of a Blockchain platform for new generation derivatives post-trade.

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Fragmos Chain is a fintech specialized in the management of derivative products for financial markets.

Financial derivatives represent a US$600 trillion market. Current infrastructures fail to deliver post-trade efficiency in Derivatives, Repo, Securities lending and Structured products markets.

McKinsey reports that mismatch between counterparties data results in US$5 billion per year of avoidable costs*. Operational incidents or breaks result in cumbersome corrective tasks like portfolio reconciliations, investigations and dispute resolutions. This also leads to regulatory insecurity, with the DTCC (Depository Trust & Clearing Corporation) reporting a 66% divergence between EMIR (European Market Infrastructure Regulation) regulatory reports.
* Report available here.

CONTEXT

Inefficiencies in OTC post trade management, due to mismatches between counterparties’ trade data, results in $5Billion costs per year. 

OBJECTIVE

Eliminate trade data mismatches through post trade automation in a Blockchain Platform

MAIN CHALLENGE

  • Privacy: The only parties who should have access to the details of a financial transaction are those parties themselves and others with a legitimate need to know.
  • Interoperability: Handling Data in Multiple Formats and multiple data sources including oracles (i.e. market data) 
  • Scalability: Scale up depending on the spike in volume of trades or data to be processed.

Blockchain benefits

Golden data

Agreement Protocole

Data Security

Self-executive Trade

Derivatives lifecycle management consists of a multitude of manual and expensive processes with high operational and regulatory risk. The innovative solution we’re implementing is made possible thanks to the support of The Blockchain Xdev and the competence of its teams.

Daniel Ivanier

Founder and CEO Fragmos Chain

Simplify the management of derivative products

With the Blockchain Xdev, Fragmos Chain has develop a digital platform that greatly simplifies the entire management chain for these products. All financial institutions can benefit, in all the major financial markets of Europe, North America and Asia.

The first blockchain platform for automating derivatives management in Europe

This platform applies two recent technologies managing derivative products: a private blockchain or DLT (Decentralized Ledger Technology) and Smart Contracts. It’s one of the very first European platforms to innovate in this market where initiatives are limited given the complexity of products.

Use of state-of-the-art standards

Fragmos Chain uses market standards for rapid deployment in the financial industry: Corda technology from R3 for the blockchain and ISDA’s Common Domain Model (CDM) data model*. The solution allows synchronization of data by design through golden trade records, golden reference data and self-executing transactions. All lifecycle and regulatory events are automatically determined, from trade confirmation and portfolio reconciliations to payments, collateral management and regulatory reporting. Data are segregated per counterparty, and encrypted using state-of-the-art standards, with strong authentication mechanism.

The results? Fully automated OTC derivatives management.

The Fragmos Chain platform automates the entire transaction lifecycle, from registration and confirmation to cash flow calculations and regulatory reporting. Self-executing trades, creating reconciliation-free and break-free trades with embedded logic to ensure state transitions, are validated according to the pre-agreed rules.