Bits and stuff: incumbents, matching and satire – Oct 16, 2017

Quartz’s John Detrixhe interviewed ex-Barclays CEO Anthony Jenkins, and the result makes for compelling reading. Since he jumped across the chasm from big bank to startup (his company sells cloud services to banks), his take on the balance between disruptors and incumbents is worth listening to.

For instance:

“I think the biggest trend that we’re going to see if the next five years is the fight back of the incumbents. The incumbents are going to wake up, and are waking up, and saying, we’ve got to get in this game.”

We’re seeing this in blockchain technology, with big banks experimenting like crazy. As I mentioned the other day, there’s so much more going on “under the hood” with enterprise financial applications than we realise.

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BBVA and BBVA Bancomer (majority-owned by BBVA, no surprise) are testing a blockchain platform for FX trade matching. As usual with capital markets, this terminology needs some unpacking.

“Trade matching” is the process of 1) verifying the validity of a trade request (is the trade actionable, is the client registered, etc.), and 2) checking that it can be executed at the requested price.

This is more complicated than it sounds, as there are a lot of details that need contrasting, confirming and comparing. Plus, there is often some uncertainty – what if the bid/ask prices don’t match? How much leeway do the institutions have? Which trades have priority?

Notice that it does not sound like the settlement takes place on the platform. Just the trade set-up.

One aspect I find perplexing is that the press release claims that the current system of matching produces a lot of errors, because different systems struggle to communicate with each other. It’s possible that their definition of “matching” is not the same as mine – isn’t it carried out on the same platform? So, no communication problems? And, wasn’t matching introduced to reduce the number of errors vs. the more labour-intensive “affirmation” system?

Further questions: Will the matching be random, or first in first out? How will order “leftovers” (the parts of an order that don’t match – the buy/sell amounts are rarely the same) be handled?

I’d be interested to see more information on this, because there may be a lot about matching that I don’t know. Or, it may be press-release hype. I hope not.

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These miniature scenes are, um, strange, to say the least… But since I have yet to come across a small world I don’t find fascinating, I’m sharing them with you. You might find them as disquieting as I do.

By Frank Kunert, via Colossal.

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