FactSet is integrating blockchain with its trading systems in what industry observers say is a pioneering overlay of emerging onto established technology.
The provider of financial information and technology is partnering with developer CG Blockchain to add blockchain to FactSet OEMS, which is built on the order and execution management capabilities of its Portware brand.
The partnership will provide FactSet’s institutional trading-desk clients with enhanced transparency and security, via real-time, persisted, immutable recording to transactions to a distributed ledger.
John Adam, FactSet
“If you look at regulations like the MiFID II regime, not only has the CG Blockchain product made this process less cumbersome for institutional asset managers, but it provides a greater degree of protection for the end investor,” said John Adam, Senior Director, Portfolio Management & Trading at FactSet.
”All institutions monitor and constrain their activity -- the question is, what happens when those tripwires get set?” said Bob Bonomo, President of CG Blockchain. “We change the dynamic by changing the possibility of a compliance audit from where it is today -- a post-mortem, after the fact perspective -- to near real-time.”
“This ultimately protects the investor, but it also gives the opportunity for a new degree of transparency to the hedge fund managers,” Bonomo continued. “This helps drive their main goal of attracting asset flows.”
Bob Bonomo, CG Blockchain
According to a 2017 Economist Intelligence Unit survey, 63% of hedge-fund investors said that transparency was very important for alternative investments, the single biggest consideration. The perceived importance of transparency increased by about sixfold in the decade after the global financial crisis of 2008-2009, according to another statistic.
The FactSet-CG Blockchain strategic relationship will allow FactSet clients to access CG (ComplianceGuard) Blockchain’s suite of blockchain apps through its BCT Fundstore.
“This kind of immutable storage of transaction records is a good idea, particularly when you look toward what’s happening in Europe with MiFID II and the climate surrounding record keeping and transparency,” said Richard Johnson, Vice President of Market Structure and Technology at Greenwich Associates. “I imagine there will be some buy-side interest.”
Johnson noted DLT is typically distributed among a number of different parties, but the FactSet-CG Blockchain is aimed at record keeping at the individual firm level. “It’s interesting that once they encrypt the data, they leverage the public ethereum blockchain to record it, to provide that immutable record,” Johnson said. “So not only is it a good use case in terms of storing the transaction data, but it’s a good use case of leveraging a public blockchain for capital markets.”
Typically a bit risk-averse and conservative by nature, institutional buy-side firms are not often first adopters of financial technology -- rather, they’ll wait for others to try it, and pick it up after it’s established in the marketplace. Adam said some investment managers are looking for a blockchain product, but others will need more information the value proposition.
“What's so exciting about this is people have been looking at blockchain and saying, ‘What can we do with this?’ The challenge has been how do you derive value from a promising new technology without ripping everything out of your middle and back office and starting from scratch,” Adam said.
Regarding blockchain, Adam said “inbound interest from our clients has been, ‘What are you doing in the space? How are you continuing to innovate and disrupt within the portfolio lifecycle, and within the OEMS?"
FactSet’s open-architecture platform “enables us to benefit from the work that CG Blockchain is doing,” Adam continued. "We can see a fund being in a substantially better position in terms of transparency and clarity to their clients, by operating in partnership with a system like CG Blockchain. It's a benefit of a strategic direction that we've had for a while.”
