Big banks and trading firms have come together for a new initiative, that’s set to launch before the year is out…
Fifteen international banks and major trading firms have formed a new group which will use blockchain to underpin traditional commodities trading, according to a Reuters report.
Commodities can be anything from mineable gold and oil to coffee, grain and beef, and form an industry worth trillions of dollars a year. The platform will be run by a Geneva-based joint enterprise called komgo SA.
Founders include Dutch multinational banks ING, Rabobank and ABN AMRO, French banking groups BNP Paribas, Crédit Agricole and Société Générale, Swiss commodity trading firms Mercuria and Gunvor, Japanese investment bank MUFG, Australian asset management group Macquarie and the US oil, gas and metals traders Koch Supply & Trading.
Commodities traders use a variety of financial instruments to make profits, including buying and selling futures, an agreement to buy a commodity at a specific price at a prearranged later date, and Exchange-traded Funds (ETFs) which are a basket of the best-performing assets in a particular market which are bundled together, and into which investors can put their money.
However, ETFs and derivatives like futures form the stock-in-trade of traditional markets and represent the vast majority of deals made in physical goods.
Commodities trading requires trust between the buyer and seller, even when the two parties are not known to one another.
Large multinational banks believe there is a serious future for blockchain-powered commodities trading, because decentralised, trustless ledgers appear to offer more transparency and security for traders and institutional funds.
Platforms which utilise blockchain in this way promise to speed up and smooth out inefficiencies in settling trading accounts and reduce the risk of fraud.
The news follows on the back of similar bank-backed blockchain-based trading products which are nearing the market, including the Hong Kong financial regulator’s agreement with seven Asia Pacific banks which debuted this month.
The komgo platform is due to launch in Q4 2018.