Setl founder Peter Randall isn’t waiting for permission to build the first competing platform in an Australian post-trade system long dominated by a monopoly.
While the Australian Securities Exchange (ASX) enjoys exclusive rights to clear and settle transactions for the nation’s financial institutions, Randall’s startup has already built a service he believes can process the load more quickly and at lower cost than ASX’s proprietary CHESS platform.
Ironically, ASX’s exploration of distributed ledger tech with partner Digital Asset Holdings has boosted the blockchain industry in Australia, yet its monopoly means less competition in bringing solutions to market.
Nevertheless, Randall isn’t waiting for the nation’s regulators to begin loosening older, monopolistic clearing and settlement controls.
And, even as a deadline approaches for a decision that could open up the Australian market to competition from his firm, Randall said he’s working on multiple other projects on four different continents.
“The most powerful force in the world is an idea whose time has come,” he said, arguing that more progressive nations around the world will inevitably allow blockchain competition to flourish.
He told CoinDesk:
“And it seems to me that it doesn’t really matter where or in which jurisdiction, or in what sort of process the onward march of the distributed ledger occurs.”
Supporting Randall’s optimistic view is that this isn’t the first time he has found himself at the helm of a startup waiting for Australian financial regulators to pave the way for his ideas.
Long before he founded Setl, Randall helped build Chi-X, an international exchange established in 2005 under very similar regulatory conditions. It wasn’t until six years after the exchange launched that regulators ended another ASX monopoly – that time, it was for the selling of stocks – clearing the way for his startup to compete.
So successful was that venture that, by the time he left the firm in 2009, it was transacting 9.1% of the trades in 10 European markets. To this day, Chi-X Australia records on average about $1bn of daily trading volume in the nation, gathering a total market share of 20%, according to the company’s website.
In 2011, the same year Australia ended the ASX monopoly, Bats Global Markets purchased Chi-X’s Europe arm in a deal then valued at $360m.
But even as Chi-X has grown to sell an increasing percentage of Australia’s total stocks, regulators have demanded that it rely on ASX technology to clear and settle those very same trades.
As a result of ASX’s monopoly on the actual post-trade processes in Australia, attempts to disrupt that space have been largely restricted to the one company publicly doing business with Digital Asset Holdings.
Now that Randall has successfully pushed into one aspect of ASX’s previous monopoly, he’s using his latest startup to up-end the last vestiges of those old regulatory controls.
Founded in 2015, London-based Setl has reportedly raised as much as $45m in venture capital to help its battle for a market share of Australia’s post-trade revenues. That’s compared to New York-based Digital Asset Holdings, which has raised $67m to work with ASX and others.
Like Digital Asset, Setl is not an open-source platform. During a recent demo of the technology, test blocks were settling about once every 0.83 seconds, though the average is about every five seconds, according to Randall. The system can process about 34 million transactions per day.
Last year, Randall’s company launched its OpenCSD platform to move the increasingly disrupted services of central securities depositories to a blockchain. Then, four months later the company partnered with venture-based Cobalt DL to deploy that platform.
And, earlier this month, German marketplace organizer Deutsche Börse Group told CoinDesk it was in the early stages of experimenting with Setl’s technology.
Among other customers that had to remain unnamed due to non-disclosure agreements are initiatives focused on financial infrastructure, private corporations and the public sector, according to Randall.
“There’s a spectrum of offers as there is indeed a spectrum of opportunities,” he said.
In the regulator’s court
Before Randall can fully enter the Australian market, though, the country’s Council of Financial Regulators is expected to review the impact of opening up post-trade to competitors, according to an AFR report.
When that concludes, most likely in September, it will be up to the federal government to end ASX’s post-trade monopoly, effectively opening the door to blockchain competitors in the space.
At around that same time, ASX is expected to come to a conclusion on whether it will fully replace its CHESS platform with the Digital Asset alternative.
In the end, Randall concedes that “it’s important that Australia resolves, from Australia’s point of view, what Australia needs,” even if that means the nation might concede what he perceives is a global leadership position.
“It’s great to have a flagship [country],” said Randall. “But you know what, let’s just get on with it.”
“It’s getting on with it that’s more important than that there’s a flagship. I’m keen for that, but I’m not going to lose sleep if it doesn’t happen.”
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Cobalt DL.
Sydney harbour image via Shutterstock