Rosario Ingargiola
Rosario Ingargiola

OTCXN - A company focused on improving and replacing financial market trading infrastructures

OTCXN is a capital markets infrastructure company using proprietary blockchain technology to eliminate the need for traditional intermediaries and trust between trading counterparties, reducing the risk, friction, and cost of trading. e-Forex spoke with Founder and CEO Rosario Ingargiola to find out more about the firm’s products and business model.

First Published: e-Forex Magazine 85 / Product Review / March 2019

Rosario, what is the best way to understand the OTCXN business?

We are a Global Trading Network.  We are the first and only trading network to completely eliminate the clearing, settlement, security and latency issues plaguing traditional and digital assets.

We’ve achieved this by leveraging blockchain technology to fundamentally change how people ‘face’ each other in financial transactions.

Here’s how we do it:
-First, trading entities and exchanges place trading collateral assets in their accounts at independent trusted custodians (e.g., Kingdom Trust).

-Next, OTCXN helps the custodians tokenize (digitize) these assets onto custodian-controlled blockchain ledgers.  

-Finally, the custodian blockchain ledgers are connected to the OTCXN network.

Once connected to the OTCXN network assets can be freely traded with anyone else on the network with no trading counterparty or settlement risk!  Additionally, all transactions settle instantaneously, making OTCXN the only real option for professional and high-frequency traders.

We are live and trading Crypto and Spot FX.  Come have a look at our streaming quotes!

We have plans and partnerships in motion that will enable us to expand our traditional asset offerings (e.g., fixed income), as well as move into the emerging digital securities market.

What specific products do you currently offer in production?

We currently offer four products:

1. LiquiMatch FX ECN:
This stand-alone FX ECN (electronic communications network) coordinates FX trading backed by tokenized Prime Broker credit (rather than Custodian asset).

Over time, this platform will demonstrate to Prime Brokers and their clients that they can face counterparties with no Prime Broker credit over our blockchain-based platform without increasing credit allocation and without trading counterparty or settlement risk.

Although newly launched, we already have a group of major Prime Brokers supporting clients on the platform, as well as a significant group of makers and takers signed up to the platform.

2. LiquiMatch Crypto ECN:
This Crypto ECN liberates and connects OTCXN’s network of provable assets tokenized onto custodial blockchain ledgers in a secure environment of instant clearing and settlement.

Our ECN offers some compelling tools that impress even the most discerning professional trader.  They include: a Lit Book (CLOB), an embedded Dark Pool and aggregated streaming executable quotes from our partner liquidity providers, as well as 3rd party institutional and retail exchanges. 

OTCXN’s OTC Block Trading venue with RFQ workflow
OTCXN’s OTC Block Trading venue with RFQ workflow

3. OTC  Block Trading:
This platform enables our clients to trade ‘off-exchange.’  The core of this platform is our institutional RFQ (request for quote) workflow that enables traders to initiate and negotiate pricing for large transactions very quietly and with minimal market impact.  Our clients can trade either Crypto for Fiat (e.g., USD), Crypto for Crypto, or Fiat for Fiat and receive instant settlement and delivery.  This platform is accessible through our web-based Trade Desk application.

4. Custodial Blockchain Ledgers:
This application makes it possible for custodians to create new blockchain ledgers for any asset they wish OTCXN to support on the network.  We provide our custodians with unique and compelling functionality including:

- Window into client-initiated requests to issue or redeem assets on or off the network and can approve or reject these requests.  

- A full suite of tools for verification and reconciliation of client assets and trading activities on the network.  
-A report that shows net settlement amounts due between client accounts so that these movements can be made periodically easily and without error..

All of the liquidity derived from our multiple  ECN and Block trading platforms can be  accessed via  a single account!

Trade all liquidity with one account and no risk
Trade all liquidity with one account and no risk

In the Crypto markets it seems there are many OTC desks and platforms that support RFQ workflows, what’s unique about OTCXN’s?

Simply, OTCXN is the only real option for professional traders.

Outside the OTCXN network, OTC block trading off-exchange involves counterparties being fully exposed to each other, with one side sending USD first and then waiting to receive Bitcoin from their counterparty, for example.  Settlement times can be significant with back office function to book the trade and track the asset movements, wire transfers, and public ledger transactions and waiting for multiple confirmations on the Bitcoin network. In some cases, settlement can be hours, even end-of-day or even T+1.  
 
On the OTCXN network, counterparties can negotiate a trade anonymously and each transaction is an atomic exchange with instant settlement.  This means there is no counterparty or settlement risk.  Nobody has initiator risk due to being forced to go first.  Further, because the assets (USD and Bitcoin) are both tokenized on custodial blockchain ledgers, they don’t actually move.  

Settlement finality is achieved in real-time with a cryptographically provable change of ownership on the USD and Bitcoin custodial blockchain ledgers recorded with a single concurrent write transaction, delivering what is effectively a Payment vs. Payment transaction.  This also means there are no public ledger transactions in the real-time trading critical path, which is critical, as the Bitcoin network supports a maximum of about 7 transactions per second globally and generally requires 6 confirmations taking approximately 10 minutes each (60 mins total) before being considered valid and irreversible.

On OTCXN’s network, digital assets like Bitcoin are immediately re-tradable instantly upon trade execution without moving from custodial cold storage over the Bitcoin network, delivering high-frequency trading capabilities and a much higher velocity of capital to capture more opportunities and scale the market capacity generally.

When we started using the trademark Fiduciary Grade, it was intended to highlight that OTCXN is a cut above all the “institutional-grade” claims of other solution providers, but it really means something.  Proprietary trading firms can take risks fiduciary money managers can’t.  No fiduciary is going to send their client’s USD to some OTC desk and hope that they receive settlement of the Bitcoin or vice versa.  So, if we believe the broader institutional investors are going to enter the digital asset market, these are largely fiduciaries who will need the solutions OTCXN delivers.

OTCXN’s Crypto ECN venue
OTCXN’s Crypto ECN venue

With so many exchanges in Crypto, how do you differentiate your LiquiMatch Crypto ECN?

OTCXN is the only solution globally that can clear and settle cross-exchange trading without being a counterparty to the trades or using its own balance sheet, which means the solution is almost infinitely scalable.  Virtually all of the Crypto exchanges in the market today are retail exchanges which resemble retail brokers in the FX space more than exchanges in many respects, and they are isolated silos of liquidity.  

Other institutional exchanges launching now are custodial and create a new liquidity silo by requiring counterparties to come there, hold assets there and trade there and they are also counterparties to the trades.   OTCXN’s LiquiMatch Crypto ECN is an institutional-only hybrid venue that has a Lit Central Limit Order Book for native resting orders matched based on a standard price/time priority algorithm, as well as an embedded Dark Pool which the orders in the Lit Book are also matched against.  

Further, it is also a liquidity aggregation solution with Smart Order Routing that matches native Lit and Dark liquidity against streaming executable quotes from liquidity providers, as well as the order books of other institutional and retail exchange venues.  

Most importantly, as was described with respect to our OTC Block Trading venue, all trading is cleared and settled instantly against provable assets on custodial blockchain ledgers with no trading counterparty or settlement risk.  Digital assets remain in cold storage wallets at the custodians which drastically reduces risk of loss, and custodians now carry insurance against any remaining risks.

What is especially interesting is that exchanges can join the network by holding a portion of client assets at a custodian on the network and then their liquidity is tradable by anyone on the OTCXN network without their doing any technical integration work. The trading entities accessing this liquidity do not need an account or assets at the exchange, which removes the exchange counterparty risk, which is a substantial concern of institutional investors, especially among regulated fiduciaries.

Tell us a little bit about the Custodian Desk solution you provide?

At the heart of OTCXN’s infrastructure is a multi-custodial blockchain ledger system.  This is one of the few production blockchain solutions in the world in capital markets trading or any domain.  The Custodian Desk application makes it possible for a custodian to create new blockchain ledgers with a few mouse clicks to support trading in any asset they can hold on behalf of clients, natively digital or otherwise.  

Custodians place an administrative lock on the affected portion of client assets prior to approving issuance of client assets onto the custodial blockchain ledger.  Issuance of an asset onto the blockchain ledger creates a coinbase transaction which becomes part of the unspent transaction outputs of the client on the OTCXN network, also known as the UTXO set.  

Custodians can also process client redemption requests by removing or “burning” assets on the custodial blockchain ledger prior to freeing up the assets at the custodian for use by the client.  The custodian nodes maintain consensus with the OTCXN node, and this consensus will be extended to trading entity nodes in a future release.

OTCXN’s Custodian Desk application
OTCXN’s Custodian Desk application

What’s on the OTCXN roadmap for the next 6 months?

We will be releasing two very exciting products. Specifically:

1. Inter-custodian net settlements
Once finalized, this OTCXN product will make it possible for custodians to initiate transactions with each other to net settle amounts due to their respective clients.  

These transactions between the custodians will involve an atomic settlement of all the assets involved including the netted off amount that gets cancelled and reallocated for each custodian’s direct clients (the amount that cancels out and doesn’t need to move), as well as the Crypto that needs to move and the Fiat amount that needs to move.  This is really just an extension of intra-custodian net settlement amounts due reconciliation capabilities.  This capability will deliver maximum capital efficiency to all network participants and minimize risks and costs associated with moving assets, as well as eliminate settlement risk between custodians.

2. Lending
The next major product release will be our repo and leverage financing and short lending capabilities.  Our repo financing and lending marketplace allows for lenders and borrowers to set their terms and preferences and make collateral they hold on a custodial blockchain ledger available for lending which is programmatically accessible, elastic and on-demand by anyone on the OTCXN network who has the requisite collateral to support the borrowing.  

A key advantage is that provable assets on custodial blockchain ledgers support maximum automation with programmatically enforced rules of engagement that eliminates counterparty risk and the friction (slowness) of paper contract-based transactions and relationships. 

Margin is managed in real-time with mark-to-market, and auto-liquidation capabilities against OTCXN’s Crypto ECN and hedging against futures.