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Goldman Sachs Files “SETLcoin” Patent for Securities Settlement
from http://nicosiamoneynews.com/2015/12/04/goldman-bets-on-setlcoin/
Goldman Sachs has applied for a patent on blockchain technology it is developing that would streamline the way securities are settled. The patent (application# 20150332395) is titled Cryptographic Currency For Securities Settlement and its stated inventors are Paul Walker and Phil Venables. Bitcoin s blockchain and distributed ledger systems inspired by it are being increasingly explored by banks to automate the settlement of securities trades and fiat money transfers. Banks have been developing their own cryptocurrency equivalents (e.g. Citicoin) as part of their in-house testing. Goldman s proposed scheme involves what it calls a SETLcoin (a very similar branding to SETL.io, which is also working on a permissioned blockchain system for securities settlement) that can be labelled to represent, for example, shares of a stock. It appears to be its own cryptocurrency, not dependent on Bitcoin, though Bitcoin is mentioned 20 times in the document. Litecoin is mentioned as well. In several instances, SETLcoin s interaction with bitcoin, such their exchange, is mentioned. The patent summarizes how the enforcement of asset transfers is carried out: The cryptographic currency protocol supports a virtual wallet that, in various embodiments, is a security and cash account for storing and managing the cryptographic currency. Opening a transaction via the virtual wallet to transfer the cryptographic currency is a strong guarantee of the availability of funds in the virtual wallet because, e.g., funds are not transacted unless the commit phase is successful. It goes on to describe how asset transfers would be carried out rapidly and can render the need for credit checks obsolete by eliminating counterparty risk. Goldman became one of the most prominent institutions to enter the blockchain race when it joined a consortium of banks that are collaboratively developing the technology. Even within the realm of bitcoin as a currency, a far more contentious concept among mainstream financial players, Goldman has been active. It was one of the main investors behind Circle s $50 million funding round in April.
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A world where businesses create their own currencies, as Goldman Sachs has signalled it may do, would be a neoconservative’s wet dream. Uncontrolled, it could be a regulator’s nightmare. The credibility of pioneering cryptocurrency bitcoin has been sapped by its use in speculative scams and money laundering.
Watchdogs are bound to blench reading Goldman’s application for a patent on a cryptocurrency called “SETLcoin”. Key examples for the use of SETLcoins include trading them for bitcoins. Funds could be particularly hard for regulators to trace when they had been pumped through chains of cryptocurrencies.
Goldman is a reputable investment bank whose ascendancy is largely the result of hard work. Critics still see the Wall Street group as emblematic of bankers’ ability to commandeer information and squeeze out fat profits. Oversight of a cryptocurrency could further increase asymmetries.
One wisecracking FT colleague calls SETLcoin “the vampire’s quid” — a reference to Rolling Stone’s description of Goldman as “a vampire squid wrapped round the face of humanity”.
But on the basis that conspiracy theories are generally too exciting to be true, SETLcoin looks more like a response to a contingency. Settlement of financial transactions may switch from the current unwieldy system of interlinked counterparties to so-called “blockchains”. Here, an electronic ledger to which all participants had equal access could collapse settlement times, raise regulatory transparency and, in some scenarios, eliminate central clearing.
Blockchains, within which Goldman envisages SETLcoin operating, are a promising part of bitcoin’s ambiguous legacy. Like Catholicism, as described by comedy priest Father Ted, the wonderful thing about blockchain technology is that’s all terribly vague and no one really understands it. That is how it feels to non-technologists, a group including 85 per cent of bankers and 99 per cent of City columnists.
Blockchains are a work in progress. One expert says we should not expect them to enter service until “they satisfy CARL” — a mnemonic for Compliance, Audit, Regulatory and Legal rules.
Not soon, then. Banks will meantime place bets on the technology via the accumulation of intellectual property. They hope to limit the impact of disruptive technology on their market positions. Media companies did the same in buying up dotcom start-ups ahead of the tech rout of 2000.
As for universal currencies, Goldman already controls one of these. It is the Goldman partnership, readily exchangeable by older Goldmanites for a well-paid job almost anywhere else.
House of card
Corrugated cardboard in the warehouses of European packaging group DS Smith. Corrugated foreheads in the boardroom as the shares slide 5 per cent after half-year results. Didn’t investors like the tie of chief executive Miles Roberts? Or had chairman Gareth Davis been insufficiently avuncular with the younger analysts?
None of the above. Investors fear DS Smith is running out of steam. Sales were flat at £1.9bn. Profits before tax were 26 per cent lower at £91m. The company spent £500m on bolt-on acquisitions during the period. But shareholders hanker after big deals to rival the €1.6bn acquisition of SCA Packaging in 2012.
Mr Roberts makes corrugated cardboard sound like a wonder stuff discovered by Nasa — “recyclable and warm to the touch”. DS Smith collects the card and turns it into boxes for big consumer product groups.
Margins of 9 per cent should be sustainable. Mr Roberts’ job is to chivvy stronger growth from DS Smith, preferably without driving the multiple of net debt to earnings much above its current level of 1.9 times. That will require smart dealmaking at a time when prices are high for corporate assets, DS Smith’s shares included.
Presentation matters, too. DS Smith quoted weak pre-tax profits upfront alongside barely-adjusted earnings, almost as if the company was trying to give the market an accurate picture of trading. Who bothers with that, these days? Analysts and some reporters happily parrot massaged numbers.
Scrap paper
Christmas is a time when families get together . . . and have a row. The Local Authority Pension Fund Forum has got in early by way of a scrap with the Financial Reporting Council.
The trade body has accused the watchdog of creating a “regulatory catastrophe”. This datapocalypse involves hairsplitting differences in the interpretation of “fair and true”.
LAPFF has written to the UK’s top 350 companies telling them to ignore the FRC’s guidance, rather in the spirit of an estranged partner posting abuse on Facebook. Let’s hope the unhappy couple kiss and make up by new year.
jonathan.guthrie@ft.com