Best post-trade services provider of the year: Baton Systems

With a payment solution that supports more than a billion events a day, Baton Systems has attracted multiple banks and central counterparties to its platform, which settles $12 billion daily. Now it plans to branch out into interbank trades, foreign exchange prime brokerage (FXPB) and solutions for the buy side.

Baton Systems has built a real-time settlement system for FX trades, using distributed ledger technology to reduce the traditional two-day post-trade cycle to as little as three minutes. The firm says it is on track to reach triple-digit billions of dollars of daily volumes this year.

Baton Systems was voted Best post-trade services provider of the year at the 2019 FX Week e-FX Awards.

Arjun Jayaram, chief executive officer and founder of Baton Systems, says the first step to extending the fintech’s offering will be for the platform to facilitate interbank trades. Currently, settlement is achieved intra-bank – meaning on a bank’s own balance sheet only.

“The interbank settlement network would initially cover four banks – three in the top 10 global FX banks and a fourth in the top 15 globally, which has a large presence in the US,” he says.

APIs integrate with the ledgers of the banks where the assets reside, plus middle and back-office systems, while a customisable software workflow engine automates and synchronises the existing business process within the institution. This results in faster, more efficient payments, a reduction in Herstatt and overall risk, and instant reconciliation and reporting for all parties.

Our solution is to settle a currency pair on one leg and synchronise that with the movement of collateral from a hedge fund client to the PB on the other leg

Arjun Jayaram, Baton Systems

Baton next envisages advancing its solution into the FXPB business of a fifth bank.

Jayaram says: “In prime brokerage there are credit and liquidity problems to be solved, and risks are mitigated by clients posting collateral. Our solution is to settle a currency pair on one leg and synchronise that with the movement of collateral from a hedge fund client to the PB on the other leg.”

The collateral is primarily sovereign debt, such as Treasuries and equities held at custody banks and central securities depositories, both in the US and in Europe.

Baton also intends for its solution to be offered by banks through their portals in a lightweight, white-labelled format for end-clients.

“Hedge funds can send and receive currencies and securities faster, meaning they can trade more. Or it could be deployed for corporate clients, as well as for other lines of business for the bank, such as trade finance or lending,” says Jayaram.

This year, Baton Systems was voted Best post-trade services provider of the year at the 2019 FX Week e-FX Awards.

In March 2018, Baton was one of four companies selected globally to work with the Bank of England to develop a proof-of-concept, examining how a renewed real-time gross-settlement service to deliver a flexible sterling payment system for the UK could operate on innovative payment technologies. Jayaram says Baton remains in active discussions with the BoE.