A new blockchain start-up focused on cleared and uncleared derivatives is aiming to replace the role of clearing houses and win industry-wide support.
Founded by two former traders at Societe Generale, SynSwap is a post-trade start-up based on hyperledger technology designed to disintermediate central counterparties (CCPs) from the clearing process, effectively removing their role in key areas.
“For now we are focusing on interest rate swaps and credit default swaps, and will further develop the platform for other asset classes,” says Sophia Grami, co-founder of SynSwap.
Grami explains that once a trade is captured, SynSwap automatically processes the whole post-trade workflow on its blockchain platform. Through smart contracts, it can perform key post-trade functions such as matching and affirmation, generation of the confirmation, netting, collateral management, compression, default management and settlement.
“CCPs have been created to reduce systemic risk and remove counterparty risk through central clearing. While clearing is key to mitigate risks, the blockchain technology allows us to disintermediate CCPs while providing the same risk mitigation techniques,” Grami adds.
“Central clearing is turned into distributed clearing. There is no central counterparty anymore and no entity is in the middle of a trade anymore.”
The potential disruptive force blockchain technology could have for derivatives clearing could bring back banks that have pulled away from the business due to heightened regulatory costs.
“Right now, we have focused on the interdealer market and large buy-side participants,” Grami says.
With further collateral rules set to be implemented in the coming months in Europe and across Asia, Grami believes the buy-side will look for more automated solutions to collateral management.
“With new margin rules for uncleared trades being implemented, we believe that our system provides a simple collateral management solution to market participants.”
Grami adds the platform is currently in the process of gaining regulatory approval from a number of national financial authorities.
“We do not expect regulators to approve a new clearing method overnight and are aware that this is not a short-term project.”