Marex Solutions, the specialist derivative hedging solutions division of Marex Spectron, has partnered with ResonanceX, a new digital structured products multi-issuer platform (MIP), and Nivaura, a fintech offering modular digital platform solutions for end-to-end automation for issuance and administration of debt, equity and structured notes, to launch the first fully automated structured note which will be cleared, settled and registered on a public blockchain.
Under the collaboration agreement, ResonanceX will provide end-to-end automation of price discovery, execution and life-cycle management with product details, life cycle events and associated alerts; as well as provide secondary market access during market hours. The platform will also be a market pioneer in the use of a centralised infrastructure or blockchain asset custody set up, according to Guillaume Chatain, CEO and founder of ResonanceX, a former managing director at JP Morgan Private Bank who oversaw client solutions and product development for equity investments in Asia.
"Our technology is well integrated with traditional centralised clearing systems, and we are also deploying our end user platform on blockchain infrastructure for clearing, settlement and custody of client money and assets," said Chatain, adding that this will be a game changer in the way products are transacted as it will enable smart contracts to administrate the life cycle events and cashflows for structured products. "This will further reduce issuance and administration costs, while ensuring compliance with regulatory client money/asset rules, and contractual requirements."
Marex Solutions, a specialist division of Marex Spectron - which added a structured investment product offering to its customised derivative hedging solutions for clients, earlier this month, will provide structuring, manufacturing and trading services on ResonanceX. Marex's first trade to go through ResonanceX is a two-month capital protected growth digital structure linked to the performance of the FTSE100 index targeted at retail investors. The product will pay a 13% annualised coupon if the underlying is up by 2.5% or the capital back if it doesn't meet that condition
Marex offers clients customisable over the counter (OTC) derivative solutions to complement the existing off-the-shelf exchange and OTC traded hedging instruments including basic currency overlays, through to the full suite of participation, protection, price improvement and range extraction solutions, offering clients virtually "unlimited hedging flexibility", across, commodities, equities, FX and fixed income, according to Nilesh Jethwa (pictured), Marex Solutions' chief executive officer.
They are now adding capital protected, participation, yield enhancement, and leverage Structured investment products across all asset classes.
"Technology is now enabling niche players to come together and replicate the high quality products that investment banks have been delivering in this market," said Jethwa, adding that blockchain has been around for some time now but banks have not been able to step in and capitalise on the opportunities. "We have the flexibility to respond to opportunities quicker than larger institutions and be at the forefront of developments. This opens up new avenues for firms like us as it can break the monopoly banks have in the structured products market."
The technology is not only helping to improve processes around issuance and trading but it's also allowing companies to interface via generic APIs that can connect the different parts, according to Jethwa.
"We can transform the natural supply and demand in the listed markets into products that deliver more precise requirements a client may have, whilst still allowing clients to convert their OTC solutions into listed futures or options, creating highly portable hedging solutions," said Jethwa. "Tailored OTC solutions allow a client to create a unique hedge which can offset their exposure more precisely than exchange listed instruments. The ability to leverage the global market coverage of Marex Spectron and benefit from their robust balance sheet allows us to combine deep and cost efficient execution with tailored investment solutions."
Hariton Korizis, Head of Structured Products at Nivaura, said that the convergence of new technology on a white-labelled full stack solution is helping to provide a more efficient fully automated set up for issuers and distributors to transact structured products. "This technology can help to streamline processes and deploy resources more efficiently in a safe environment to trade," said Korizis. "Technology is also allowing to bring enhanced transparency to the processes, improve communication by the different parties in a fully auditable way and manage the whole life cycle of products. Having all that rich data generated on one platform is also helping businesses innovate and develop new functionalities that can expand the market around portfolio management, reporting, etc."
Nivaura are alumni of the Microsoft Accelerator, and are part of J.P. Morgan's In-Residence Programme as well as being the first company to work as entrepreneurs-in-residence in Allen & Overy's Fuse incubator, a 'collaborative tech innovation space to explore, develop and test legal, regulatory and deal-related solutions, launched by the law firm in September 2017. They are MiFID and CASS approved which allows them to offer FCA regulated technology. In 2017 they helped a client issue the world's first fully automated cryptocurrency-denominated bond issuance that was cleared, settled and registered on a public blockchain infrastructure.
The new platform, ResonanceX which met the UK Financial Conduct Authority's sandbox eligibility criteria and was accepted to develop towards testing on December 5, 2017, has recently received approval from the UK watchdog to be regulated. The FCA sandbox allows firms to test 'innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place. It is part of an initiative kicked off in 2014 to promote competition in the interest of consumers'.
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