Flash Crashes & Fintech

Note from the CEO:  Oh good. A fintech firm has some technology that will be able to help find out the cause of “flash crashes” and where the blame may be. DUH! The cause of the Titanic sinking was hitting the iceberg while going too fast. Prevention? Steer around the iceberg slowly. Fintech firm to world; come up with a prevention feature to stop flash crashes before they occur.

Citigroup is backing a fintech firm (Cobalt DL) that uses a distributed ledger to create one single trade record that would replace existing fragmented systems. This is the same technology (blockchain) that tracks bitcoin and its basic use is to streamline operations and cut costs. But this technology may have the potential to quickly trace and inspect trading activity. Good idea until the cause of crashes may be internal lack of risk control at the company (Citigroup?) who funded the technology.

Sudden jolts in the currency market may be becoming more frequent, with at least three flash crashes over the course of 14 months. But there is some hope in finding out their causes more quickly.

Citigroup Inc. is investing in a technology that, if widely adopted, could help get to the bottom of sudden market spasms. The world’s largest currency trader is backing Cobalt DL, which aims to use a distributed ledger to create a single trade record that would replace existing fragmented systems.

Best known for the blockchain that tracks bitcoin, distributed ledger technology has been a major focus for financial firms trying to find ways to streamline back-office operations. Like most companies using the technology, Cobalt is primarily trying to cut costs for financial firms. A side benefit, however, is its potential to quickly trace and inspect trades.

Flash crashes are a big concern for banks. The U.K. is still investigating the pound’s 6.1 percent plunge on Oct. 7 — the Bank for International Settlements is expected to provide a report on the event next month. Citigroup is also under scrutiny, with regulators summoning the bank to discuss its possible role in the incident.”

Source: Bloomberg