What does 9th Gear do?
9th Gear is the only B2B marketplace that enables same-day Foreign Exchange (FX) transactions with on-demand liquidity, offering greater transparency, reduced risk and lower cost to significantly more participants. Through a digital transformation of the back-office, 9th Gear has re-imagined FX, moving from a process dominated by a handful of banks where a trade takes two days to settle, to a process that is open to new participants and completed in minutes. Leveraging privately permissioned blockchain technology, 9th Gear utilizes smart contracts and a distributed ledger to transform this $5.1T/day industry.
How does 9th Gear approach the FX trading model different than anything else on the market?
By deconstructing the trade, 9th Gear offers complete transparency and allows more parties into the transaction, each taking on their desired role in the transaction. Institutional lenders, including insurance companies, asset managers and corporate balance sheet lenders, can now take part in the transaction. The marketplace thereby ensures multi-party trade execution with confirmed funds by directly provisioning currency lenders. Naked shorts* are eliminated and the marketplace provides liquidity for traders. 9th Gear does not use cryptocurrencies in its marketplace, working only in FIAT values. Banks will have the choice to maintain forward FX exposures to clients, or allow them to be absorbed by other lenders in the marketplace. Lenders will provide additional liquidity to the marketplace without taking on FX price risk. Those needing to trade will see enhanced pricing from a wider array of lenders than currently available. Taken together, 9th Gear delivers lower capital needs, reduced risk, greater security and trades that settle in minutes, not days.
What is the impact of 9th Gear’s technology on the FX market?
Unlike other FX solutions that seek to drive efficiencies in the existing process, 9th Gear is a lending-enabled marketplace that re-imagines the order of a transaction to first fund then trade. This results in lower capital needs, reduced risk, greater security and trades that settle in minutes, not days. As a consequence of 9th Gear’s on-demand payment liquidity, there is surety of funding before trading, and thus, the ability to trade and settle the same day without delivery risk. This assurance will dramatically change FX trading today.
Why has nothing like this been done to date?
The transactional systems that banks used have evolved over time, but this evolution has generally resulted in slight improvements to existing systems. There has been no agreement on how to evolve the system to be more effective and efficient overall. The attempts to do this have largely resulted in failure to agree on any new standards.
There is now widespread agreement amongst institutions that blockchain technology represents an opportunity to move ahead with a new system that is ideally suited to secure transactions, and that uses a distributed ledger technology that is widely accepted as the method for securely processing transactions.
9th Gear has re-imagined how transactions should ideally occur, and with its patented systems and processes, is able to offer a unique opportunity for banks and institutions to take advantage of a secure and efficient technology. While others have made efforts, it is the timing of the acceptance of blockchain, and the re-imagining of how transactions should occur that is unique and why others have not been able to achieve what 9th Gear is creating.
Why is blockchain critical to the exchange?
9th Gear utilizes privately permissioned blockchain technology to execute trades in the marketplace. Blockchain’s distributed ledger offers a single, immutable version of the truth and smart contracts execute simultaneously across all parties, eliminating delivery risk. The blockchain also provides a secure and immutable record of every transaction, ensuring that all participants are able to accurately record and report on every trade. As an immutable ledger, 9th Gear’s blockchain implementation provides the security and reporting necessary for all participants to ensure their trades and loans are accurately transacted and reported.
Why are you using Ethereum instead of Hyperledger or another framework?
Unlike Hyperledger and other popular blockchain alternatives like Corda, Ethereum uses Practical Byzantine Fault Tolerance (PBFT) making it more resilient and less susceptible to attack. Additionally, Hyperledger, though popular in supply chain applications, does not allow the addition of new nodes nor enable new node discovery, making it impractical for financial industry applications. While IBM is producing extensions to Hyperledger, the pace of development is slow when compared to the capabilities we are able to introduce using Quorum (a version of Ethereum). Using Quorum is the best selection to enable 9th Gear to produce a high performing and secure solution that is able to be developed and brought to market quickly. You can read more in our blog on this topic.
Who are your customers and how does 9th Gear benefit them?
We have 3 classes of customers:
“Market Makers” - larger, global banks and some regional banks that answer the call for a trade, offering an exchange rate for the transaction. For global financial institutions who seek to reduce the risk, complexities and costs of FX transactions, 9th Gear offers same day trading and settlement, reducing delivery and credit risk and lowering capital utilization.
“Price Takers” - include regional banks, insurance companies, corporate treasurers and asset managers as FX trade initiators. The 9th Gear marketplace offers greater access to trading counterparties creating increased competition and the potential for better pricing. Additionally, the marketplace enables same day trading and settlement of FX transactions with the security of blockchain technology but without the added price risk of cryptocurrencies.
“Lenders” - 9th Gear offers institutional lenders like corporate treasurers and asset managers an entirely new class of lending opportunities. From minutes to 3-year loan maturities, investment grade borrowers can add 10 - 30 basis points to their investment returns on each trade they facilitate. These lenders will be able to choose lending tenors ranging from minutes to multiple years, selecting credit exposures that suit their risk appetite and earn returns on opportunities once restricted only to the banks. Intraday lenders will be able to see additional returns up to 25bps in their overnight cash management programs by taking part as they lend funds multiple times during the day. Lenders control loan currency, rate, borrower credit rating, and tenure, enabling the lender to extend credit in a very controlled manner, further mitigating risk in a diversified portfolio. The introduction of intra-day lending creates a new source of revenue with the ability to lend funds multiple times per day as trades settle without the need to impact the balance sheet.
In addition to those 3 customer classes, we also offer greater transparency for regulators.
- "Regulators" - regulatory agencies oversee financial institutions and need to ensure greater compliance, security and transparency in global transactions. 9th Gear is a private permissioned blockchain ecosystem that enables same day settlement of all FX trades. Unlike the current status quo, 9th Gear’s lending-enabled marketplace deconstructs a trade to first verify funds, then finalize the transaction; eliminating delivery risk, redefining and reducing credit risk, decreasing capital requirements, and providing easier adherence with Dodd-Frank, EMIR and MiFID II.
How does 9th Gear make money?
How do you ensure privacy and security?
9th Gear’s implementation is on a private permissioned blockchain, which is only accessible to partners who have passed KYC/AML (Know Your Customer/Anti-Money Laundering). These partners are reputable institutions and corporations with their own stringent security practices that are audited by 9th Gear to ensure that endpoints are kept private and secure. 9th Gear also utilizes advanced threat detection mechanisms that are constantly monitoring for unusual behavior. While the blockchain technology itself has never been hacked, we don’t assume that it can’t happen, and have designed the system to be resilient. Redundancy and the distributed nature of the system enable survivability through potential threats. If a threat is encountered, it will be shut down before it has the opportunity to affect transactions. In the event of a customer on the network being hacked, the threat will be limited such that other customers won’t be impacted through the system.
How do you meet the various regulation requirements in different countries/regions/cities/states?
The banks are held to various capital requirement regulations like Dodd-Frank (USA) and MiFID (EU). Through the ability to disaggregate a trade into the trading and lending components, coupled with on-demand payment liquidity that is built into 9th Gear’s marketplace, the capital requirements of the trading banks can be lowered, thus making adherence to these regulations easier and allowing the banks to increase their trading volume.
Do you use crypto-currencies to execute the transaction?
You say that you eliminate “delivery risk.” How is that possible?
Is there any currency (cryptocurrency or otherwise) exchange rate fluctuation risk in the transaction?
No – While transacting parties, by definition, are taking FIAT currency exchange rate risk, there is no additional risk in the process beyond the inherent nature of the trade. As the marketplace does not utilize any other currency or crypto-currency, dealing only in FIAT values, all risks are defined by the transaction itself.