Forwards Contracts Trading on R3 CORDA
Forwards Contracts Trading on R3 CORDA

Forwards Contracts Trading on R3 CORDA

Introduction

Finance as an industry has seen tremendous technical growth within the past couple of decades. The rise of the Exchange Traded Market has left the use of manpower in trading stocks rather irrelevant. Yet despite this growth Over-the-Counter markets have not yet disappeared and continue to function with robustness. The main reason for their continued existence has been the forward contract market which has a special place in the industry as it provides a service which as of yet could not be done with the available technology. The following proof of concept(POC) aims at the assimilation of Forwards into a more technologically driven marketplace.

Platform Selection – R3 Corda

After much detailed deliberation and comparing the pros and cons of the various available blockchain technology we settled on R3 Corda which has been developed keeping in mind the requirements of the average worker in any Financial Institution and hence would be easily understandable by the same. Also as R3 has a clear dedication towards developing Corda in line with the Financial Markets it becomes a perfect vehicle on which this service could be based as it would understand the underlying market which the users would be dealing with.

Also, Read Our Next Article on Supply Chain

What are Forwards?

Forwards are a highly customizable Financial Instruments which helps investors hedge the bets against the positions they have taken in the market. In a crude sense, a Forward can be thought of as a promissory note to buy(sell) a specific tradable asset(commodity, Currency, etc.) at an agreed upon price.
This allows the investor so have some sense of security about the current investments he has made and creates an overall safer position in the market.

Solution

The major issue that automating such a process is the privacy issue, as some single central party tends to handle all the data. This creates a problem as the data is confidential and needs to be kept private. A central party handling such amount of private information makes it prone to hacking as well as creates a possibility of misuse by the central party.

The POC develops aims to overcome this privacy issue as well as lack of trust by using Distributed Ledger Technology, which gives the participant only the option to see their own data rather the data of all the users giving away information on a need to know basis and hence allowing privacy of data to be maintained.
It also provides a safe and secure way to store sensitive data as such a system is much more hack-resistant than traditional central database systems, giving it a better sense of security.

The development has been in such a way that even parties holding a Node would not have access to all of the data making the requirement of trust in the participant redundant due to the inability of someone else seeing the transaction that does not specifically involve them.
It also does not compromise on the customizability which is provided by a regular Forward contract.
This makes it one of the better solutions out there so as to increase the ease of trading customizable products.

You can get the complete code here

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Thanks for reading. Also, do check out our earlier blog posts.