A mainFT scoop earlier this week may need prompted emotions of déjà vu for some readers:
The London Inventory Trade Group has drawn up plans for a brand new digital markets enterprise, saying this may make it the primary main change to supply intensive buying and selling of conventional monetary belongings on the blockchain expertise greatest identified for powering cryptocurrency.
When you’ve received previous the whiplash of successfully listening to “I’m sceptical of crypto however blockchain has potential” rearing its head*, let’s look a bit nearer.
LSEG is, actually by the requirements of its personal inventory change, an fascinating firm. It share value has risen dramatically over current years amid its mixture with Refinitiv and the corporate’s continued transformation from mere inventory change (yawn) to a fully-fledged monetary information large (thrilling). Its new slogan is hardly inspiring, however can’t actually be argued with: “Others do a few of what we do, however not the whole lot we do.”
In truth, it appears like precisely the kind of techy London-listed firm that might presently be a flight danger, if it wasn’t for . . . effectively, you realize. As a current Jefferies word put it:
LSEG’s evolving fairness story is more and more pushed by continued momentum in its subscription-income-generating enterprise strains. The relative positioning of its index and enterprise information companies is already robust, in our view.
The “weak hyperlink”, as Jefferies places it, is Refinitiv’s “desktop franchise”, ie Eikon, ie the Bloomberg terminal competitor that’s usually invoked within the sentence “silly f—ing Eikon”. That might change with the arrival of Workspace, its new platform (however Alphaville remembers related chatter about Eikon when that launched again in 2010).
LSEG can also be shifting ahead in different areas, together with, natch, AI. As mainFT’s Nikou Asgari reported final month, it has discovered a good friend with advantages on this space:
David Schwimmer, chief govt of LSEG, mentioned the corporate was working with Microsoft to create “bespoke giant language fashions” . . .
Microsoft took a 4 per cent stake in LSEG in December final yr and secured a board seat as a part of a 10-year strategic partnership, marking the newest in a collection of incursions by Huge Tech into the operation of world capital markets. Seattle-based Microsoft additionally invested $10bn in OpenAI in January.
Jefferies held an name with Paul Dragan, former head of market improvement at Eikon, in July. Right here’s a part of what he needed to say concerning the Microsoft connection:
I feel it’s incredible. I feel there have been a number of layers of what was truly going by after we first heard concerning the partnership between Microsoft and Refinitiv. Initially, I feel when you consider possibly the obvious piece for some, which is the cloud, Microsoft Azure providing, and so on., you must perceive the operational complexity and price for Refinitiv of amassing all of the monetary information on the earth, normalising it, cleaning it, structuring it, but additionally delivering it to their clients world wide. So you have got clients in Sydney that like to obtain their US market information actually quick and actually contemporary and that’s costly. You have got numerous handbook work. You have got numerous infrastructure that Refinitiv has to handle with a purpose to make that potential.
So having a participant like Microsoft Azure and all their information centres, all their capabilities within the cloud, will certainly have an effect on the infrastructure prices. I feel there’s some nice cost-savings potential for Refinitiv simply just by leveraging what Microsoft Azure has to supply. Refinitiv’s price of sustaining their very own infrastructure is sort of excessive and it must be refreshed. They personal the info centres, they personal the comm strains, and so on. The price of refreshing that’s fairly excessive and it has to occur each three years with a purpose to be aggressive, and so on. It is going to undoubtedly give LSEG and Refinitiv some cost-savings and permit them to be extra aggressive.
All of it sounds fairly cosy. However, uh, blockchain? Actually?
We will verify that Microsoft is concerned — LSEG’s head of capital markets Murray Roos informed mainFT in world unique, previously-unreported feedback (h/t Laura Noonan):
We’ve been investigating among the tech and engineering . . . for quite a few months with Microsoft.
Plus Microsoft’s world Web3 lead simply kinda tweeted it out:
watch this area 👇
extra data to come back quickly 👀https://t.co/n6ZeUyN5Mo
— vassilis.eth (🌆 ,🌆 ) (@TziokasV) September 4, 2023
What can we learn about Microsoft’s blockchain providing?
On the floor, not an entire lot. Chief govt Satya Nadella told Davos this year that he believed within the blockchain, however that it wanted “killer apps”. We additionally understand it had a home-made blockchain product on Azure, its internet providers platform, that got canned in 2021 in favour of a third-party offering.
There may be this press release, from Might (our emphasis):
Digital Asset and main market individuals announce their plans to launch the Canton Community, the trade’s first privacy-enabled interoperable blockchain community designed for institutional belongings and constructed to responsibly unlock the potential of synchronized monetary markets.
Canton Community individuals embody 3Homes, ASX, BNP Paribas, Broadridge, Capgemini, Cboe World Markets, Cumberland, Deloitte, Deutsche Börse Group, Digital Asset, DRW, Eleox, EquiLend, FinClear, Gambyl, Goldman Sachs, IntellectEU, Liberty Metropolis Ventures, Microsoft, Moody’s, Paxos, Proper Pedal LendOS, S&P World, SBI Digital Asset Holdings, The Digital Greenback Mission, Umbrage, Versana, VERT Capital, Xpansiv, and Zinnia.
Canton, the discharge says will present a “decentralised infrastructure” that may join between totally different functions constructed with Digital Asset’s Daml smart-contract language.
This feels rather a lot the form of factor LSEG has in thoughts, and Microsoft are clearly concerned. We will’t see one other finance-oriented blockchain mission that they’re in mattress with. Nonetheless, Deutsche Börse and CBOE are listed as Canton companions whereas LSEG isn’t — so we’re closely spitballing right here. Certainly, it isn’t even clear that work has actually begun on this blockchain mission.
But when Canton is the framework . . . what’s Digital Asset?
[birdseye camera zooms out from London, planet pivots and spins backwards through time, camera zooms in on A Land Down Under]
From the Australia Monetary Assessment last December:
Digital Asset, the start-up that was constructing the brand new settlement system for the Australian fairness market, has declared the ASX [Australian stock exchange] should shoulder the blame as a result of it modified the scope of the mission and by no means created a plan to repair core points because it started to unravel.
The retort from the New York-based firm comes after ASX chief govt Helen Lofthouse earlier this week informed a parliamentary committee that “escalating delays” in software program improvement at Digital Asset have been one of many key causes behind the ASX’s choice to drag the plug on the mission.
This triggered a $250 million write-down, set the vital market infrastructure improve again at the least 5 years, and triggered a lack of religion in ASX’s functionality to handle expertise, infuriating the Reserve Financial institution and company regulator.
[FT coverage of the Australian exchange group’s hilarious blockchain misadventure here]
The ASX commissioned Accenture (who, it ought to be famous, are hardly unbiased on this context, given their involvement in pushing blockchain options) to conduct a evaluate of the saga (PDF here). Accenture discovered solely 63 per cent of the rebuild was supplied to ASX for testing. A Reuters postmortem from late final yr mentioned:
Individuals engaged on the mission raised considerations that Digital Asset lacked after-market help and that the ASX had enlisted the corporate with out testing its product for scalability, the individual mentioned, including that the troubles went unaddressed. Finally, ASX had 300 folks engaged on the CHESS substitute mission, about one-third of its headcount.
We’re fairly far down a speculation gap right here, however we expect it might actually increase some eyebrows within the Metropolis if LSEG does find yourself in mattress with Digital Asset over this — no matter whether or not or not the latter was accountable for the ASX debacle. However possibly Microsoft can be simply the form of chaperone to make such an association work.
Wild hypothesis however, the larger image remains to be outstanding. A yr on from ASX’s embarrassing and ignominious blockchain blow-up, LSEG’s embrace of the identical tech feels stunning to say the least. We’ll be watching how this develops with nice curiosity.
Digital Asset declined to remark. LSEG declined to remark. Microsoft didn’t reply to a request for remark.
*This additionally isn’t the primary time LSEG has made a blockchain push — in 2017, it partnered with IBM to make a blockchain-based platform for issuing non-public shares in Italian companies by Borsa Italiana, utilizing one thing referred to as the Hyperledger Cloth body. It’s not clear how that has progressed, though Hyperledger lists far fewer “premier members” than it used to.
