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BLOCKCHAIN AND DLTS MUST EVOLVE TO MEET THE NEEDS OF CORPORATE FINANCE AND FX

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BLOCKCHAIN AND DLTS MUST EVOLVE TO MEET THE NEEDS OF CORPORATE FINANCE AND FX

By Wolfgang Koester

C-level executives and board members are investing billions of dollars into blockchain, and it’s easy to understand why. How could any corporate leader looking for trust, transparency and efficiency in their operations, resist a technology that promises trust, transparency and efficiency?

Yet, despite the excitement around blockchain/distributed ledger technology (DLT), it is not yet the panacea finance professionals have been waiting for. Despite being available for nearly a decade, it remains a work in progress.

Blockchain and Beyond

For the uninitiated, a DLT essentially replaces a centralized ledger system with peer-to-peer, digital databases. DLT allows key information – once housed in static repositories– to be stored in data “blocks,” that reside across vast networks, or “chains,” of computers.This ensures no one single individual or entity has complete control over key data. Instead, the new technology enables data to be owned and overseen by all stakeholders, each of whom has full visibility into every transaction, payment or entry.

Not only does this facilitate transparency, it also enables reconciliation to occur quickly and free of friction. Additionally, costly middlemen can be eliminated.

Consider how appealing these features – access, visibility, efficiency – are to CFOs, corporate treasurers and treasury managers who must manage a litany of financial activities across numerous ERPs, entities, continents and time zones.The appeal of DLT helps explain why 80 percent of financial executives predict their companies will be using blockchain by 2020. Any technology that can deliver greater visibility into transactions and exposures while facilitating more efficient settlements would be a welcome addition to any treasury team’s toolbox.

However, concerns about DLT linger for treasury executives and those concerns must be addressed before blockchain/DLT is fully embraced by corporate finance teams.

For instance, although eliminating needless middleman sounds like a giant leap towards efficiency, regulators and compliance officers actually take comfort knowing that middlemen are included in trade settlements and other processes, ensuring the appropriate “t’s” are crossed and “i’s” are dotted. Additionally, although “open-source,” peer-to-peer architecture facilitates collaboration, it can also trigger compliance-related anxieties for executives who may be concerned that too many stakeholders have access to proprietary data and confidential information. (This explains the growing popularity of “private DLT,” which restricts access, but – as any true DLT proponent will tell you –reducing access to a digital ledger undermines part of the technology’s appeal.) Finally, scalability remains a concern: Each day corporate finance teams are asked to negotiate high volumes of complex trades and settlements. It remains unclear if today’s DLT can accommodate the intense demands treasury teams face when executing foreign exchange (FX)trades.

Future Incarnations of DLT

These concerns may seem granular to some board members and C-level executives, but details like these are important to treasury managers tasked with managing FX.

In the first half of 2017 alone, according to FiREapps research, North American and European corporations lost more than $14 billion due to FX-related losses. Such losses may get overlooked in the cloud of hype that now surrounds blockchain. Despite their best efforts and expertise, many corporate finance professionals are still challenged when it comes to containing the impact that currency volatility has on earnings per shares (EPS) or EBITDA. This stems in a large part from the fact that many corporations continue to rely on manual processes to manage currency exposures.

So, in one respect, any new technology – such as blockchain – that promises to replace manual currency risk management programs will be enthusiastically embraced by C-level executives. But blockchain is not yet sophisticated enough to do that. Not yet, anyway.

I mention blockchain as it continues to capture the lion’s share of headlines because it supports Bitcoin, the first digital currency. But Bitcoin is only one of many digital currencies now available(there are currently more than 1500 cryptocurrencies on the market)and blockchain is only one DLT of many.

For instance, cryptocurrency IOTA receives less attention than Bitcoin despite the fact IOTAis the fourth most valuable digital currency (as of January 2018). And IOTA is not even supported by a traditional DLT; instead, it is supported by “The Tangle”, which is a directed acyclic graph, or DAG. Proponents of The Tangleare already calling it the “next generation” of blockchain because they insist it is far more fluid, scalable and efficient than any DLT. (This rendering shows The Tangle in action).

Time will tell, but the popularity and sophistication of IOTA and DAG underscore the evolving nature of digital ledgers and why corporate executives should treat DLT as a work in progress.

How many digital ledgers are now available or in development? That is impossible to say, but last year new DLT start-ups attracted five times as much venture capital as did new equity opportunities combined, meaning the DLT bandwagon – and the problems they solve – will continue to grow.

This is why eager executives (as well as those who may still be on the fence) should be enthusiastic about DLTs, but they must also recognize the technology is evolving. Just as America Online (AOL) was a primitive precursor to today’s highly-advanced search engine algorithms, current DLT – as exciting as it is – offers only a glimpse of the promise that tomorrow’s distributed ledger technology will deliver.

So, if DLT is far from its full maturity, should board members and C-level executives curb their DLT enthusiasm? The answer is “no.” As the World Bank stated earlier this year, “Waiting for ‘perfect’ DLT solutions could mean missing an opportunity to help shape it.” Or, as Bain and Company concluded in 2017,“the [DLT] winners will be those that push the pace of change, rather than resist it.”

CFOs should welcome DLT – just as they should stay abreast of all the latest treasury technology. By being proactive, corporate executives can have a hand in shaping the evolving DLT, ensuring it meets the real needs of their treasury teams.

About the Author

Wolfgang Koester is the CEO and co-founder of FiREapps. He has more than 30 years of extensive experience in currency markets and working with numerous global Fortune 1000 companies and government entities. Prior to co-founding FiREapps, he served as President of GFTA Trendanalysen Inc., a quantitative currency management company. Koester has been named as one of the “100 Most Influential People in Finance” by Treasury & Risk magazine and is regularly included in Global Finance’s annual “Who’s Who in Foreign Exchange.” He is a frequent speaker at industry and academic events and his work has appeared in The Economist, The Wall Street Journal, Financial Times, Treasury & Risk and AFP Exchange among other industry publications. He is a regular commentator on CNN, CNBC, Fox Business and Bloomberg.

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Energy stocks drag down FTSE 100, IG Group slides

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Energy stocks drag down FTSE 100, IG Group slides 1

By Shivani Kumaresan

(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.

The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.

Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]

“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.

“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”

The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.

British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.

IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.

Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.

Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)

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Wall Street bounce, upbeat earnings lift European stocks

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Wall Street bounce, upbeat earnings lift European stocks 2

By Amal S and Sruthi Shankar

(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.

The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.

All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.

Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.

Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.

Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.

The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.

“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.

The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.

“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.

Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.

Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.

Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.

Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.

(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)

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Miners lead FTSE 100 higher on earnings cheer

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Miners lead FTSE 100 higher on earnings cheer 3

By Shivani Kumaresan

(Reuters) – UK’s FTSE 100 rose on Wednesday as miners gained after a strong production forecast from BHP Group, while encouraging updates from luxury brand Burberry and education group Pearson drove optimism about the earnings season.

BHP Group Ltd climbed 2.8% after it forecast record iron ore production for fiscal 2021, helped by high prices for the commodity. Other miners Rio Tinto, Anglo American and Glencore rose more than 2%.

Global markets rallied in anticipation of more fiscal spending as Joe Biden prepared to take charge as the 46th U.S. president.

“There is a view in the markets that more spending is in the pipeline, after all, Mr Biden will want to start his presidency on a positive note,” said David Madden, market analyst at CMC Markets UK.

The FTSE 100 index rose 0.4% and the domestically focussed FTSE 250 index added 1.4%.

The FTSE 100 has recorded consistent monthly gains since November after the sealing of a Brexit trade deal and hopes of a vaccine-led economic recovery, but has recently lost steam as tighter business restrictions sparked fears of a slow rebound.

Burberry rose 3.9% as it stuck to its full-year goals and said higher full-price sales would boost annual margins and Asian demand remained strong.

Global education group Pearson jumped 8.6% after its global online sales grew 18% in 2020, helped by strong enrolments in virtual schools.

WH Smith Plc surged 10.4% to the top of the FTSE 250 index as its trading during Christmas was ahead of its expectations.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V, William Maclean)

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