AMTF would like to thank Randy Wilson - Management Partner at Deloitte UK for his superb talk on Blockchain today and how it can be applied to commodity trading.
Covering the processes, growth of Blockchain technology and the issues/benefits of a decentralised system, the talk proved to be very worthwhile to management and our trading teams.
Firms are dealing with greater requirements for reporting, transparency and dissemination of data. Costs have gone up and revenues have gone down. This technology really gets to the core of all those issues.
"Picture a trade floor five years in the future. The robotic trader managing one of the gas desks is about to execute a physical natural gas trade with an industrial customer. One of the robot’s trading algorithms scans available market interest and optimises its search for the best deal to meet the customer’s volume and tenor requirements for a given period. Once the robot’s proposed deal terms are approved by the customer, the trade is executed and recorded on the Blockchain. The deal terms are automatically confirmed and nomination information is recorded on the Blockchain and available to the pipeline shipping the gas. As gas flows throughout the month, physical settlement occurs daily with payment initiated immediately. All activity added to the Blockchain is readily available to the seller, buyer, pipeline and bank. Physical title of the gas is also conveyed directly via the Blockchain."
Smart contracts are one application of Blockchain technology that will impact all commodity market participants in the not too distant future. Smart contracts are effectively programmes which are loaded into, and sit alongside traditional transactions within a Blockchain, that can automatically execute pre‑definable code when called (for example, automatically executing the terms of a contract when trigger events occur). Think of a digital confirmation containing embedded IF & THEN statements that could automatically be executed if certain price or volume conditions are met. The impact on transacting cost will be significant. The important thing about smart contracts is they reside in a decentralised system accessible to anyone, that doesn’t require any intermediary party.