The Singapore Exchange Limited (SGX) has increased its wager that distributed ledger technology will be the key to leadership in global financial markets in the future.
The exchange, which is the largest and fastest growing fx trading center in Asia, has invested an undisclosed amount in London-based foreign exchange startup Cobalt, a firm that is using distributed ledger technology similar to the bitcoin blockchain as a way to streamline post-trade settlements. Globally, foreign exchange represents the largest financial market in the world with an estimated $3 trillion a day in transactions.
Already, major trading firms, including Citadel Securities and XTX Markets, are among 22 firms testing Cobalt’s peer-to-peer beta version, with seed investors Citigroup and Digital Currency Group also backing the London-based startup. Cobalt intends to use the funds in the build-up to the public launch of its distributed ledger technology (DLT) later this year.
But it wasn’t just the foreign exchange platform in its own right that caught SGX’s attention, according to Michael Syn, head of derivatives at the exchange. Syn told Forbes the exchange views the strategic investment as an exploratory move to see how DLT might improve a wide range of financial services.
“What Cobalt is doing is pioneering a new set of workflows about efficiency, about cost flows,” Syn said. “But also, a pattern — a successful pattern — that’s established by Cobalt could also be applied to other marketplaces, for example, commodities, or futures, or equities.”
While Cobalt intends to use the money invested under terms that were also not disclosed to build out its team in anticipation of its public launch, SGX sees the investment as a way to signal DLT’s maturity to the rest of the world.
“Cobalt has evolved one large step towards market and the fact that it has other markets like SGX involved shows what’s possible in the future,” Syn said. One reason for the derivatives boss’s confidence is a regulatory sandbox established last year by the nation’s central bank, the Monetary Authority of Singapore (MAS), designed to encourage experimentation while minimizing concerns about regulatory backlash should something go awry.