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Challenging the Status Quo: Cinnober Aims To Break Into The Back Office Clearing Space

There was a time when many thought there wasn’t really much of a market for full clearinghouse solutions with real time clearing and risk management. But in 2007 and 2008, Cinnober successfully pushed into the space and carved out a nice niche for itself, especially as the global financial crisis illustrated the intense need for such solutions.

Now, the company is pushing into the established space of back office clearing for clearing member banks and brokers. That space is essentially a duopoly owned by FIS, (formerly Sungard, formerly GMI and now called Stream) and ION, (formerly Rolfe & Nolan). And many firms run their own in-house back office systems. Last month, Cinnober announced plans to create a separate subsidiary that will offer new post-trade technology, or client clearing.

Speaking with me at the World Federation of Exchanges annual conference last month, Cinnober CEO Veronica Augustsson said it is about time that someone steps into this space and challenges the status quo. It won’t be easy. FIS and ION dominate the space, no matter how much back office professionals complain about it. For many, they are the Chevy and Ford of back office systems that run. Why mess with it?

But Augustsson said banks are looking for new technology and that requires “a change of mindset.”

The new subsidiary isn’t named yet, but Cinnober will base the new solution on its  TRADExpress Realtime Clearing platform, used by a sizeable number of exchanges.

It’s an interesting idea at this point in market history. Many banks and exchanges are looking to blockchain, or distributed ledger technologies, to address many of the problems on the back end of the transaction chain. This leverages Cinnober’s proven technology.

History shows that this market is a tough one to crack. But Cinnober has proven the naysayers wrong before. The firm is also pushing into the trade reporting space with the London Stock Exchange, with its BOAT services, another area she sees as ripe for innovation and competition.

With this latest effort, she points out that the firm introduced real time clearing to the exchange space over the past five years. Now it is time to address the back office space.

Can they succeed where many others have not? Stay tuned.

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Kharouf is CEO of John J. Lothian & Co. and editor-in-chief of John Lothian News (JLN). He edits the John Lothian Newsletter, MarketsWiki and MarketsReformWiki.