Saphyre: The Path to Real-Time Trading With Saphyre X
Earlier this year, US trade settlement regulations shifted from a T+2 to a T+1 mandate – meaning all US trade deals have to complete the settlement process within 24 hours as opposed to the previous 48 hours.
In doing so, US stock markets are matching trade regulatory standards with other leading markets – the likes of European and Asian markets included. The move means US traders must adjust and speed up settlement processes.
This is where Saphyre can support leading financial institutions by offering trade settlement in near real-time, or – as co-founders Gabino Roche Jr and Stephen Roche like to call it – ‘T+0’.
To achieve near-instant settlement, traders must put in the work pre-trade, which is where Saphyre comes in with its expertise in trade settlement cultivated over seven years.
Building on Saphyre 1 with Saphyre X
“There are two parts to Saphyre,” says Gabino. “For the first seven years of Saphyre’s existence, we’ve been focused on pre-trade services - which we’re now calling Saphyre 1.
“We call it this because it’s the first step; it’s the comprehensive solution traders need to have in one place to achieve near-instant trade settlement.”
The next part of Saphyre’s services today is its post-trade suite – Saphyre X – which effectively provides a streamlined post-trade service thanks to the groundwork being laid effectively in pre-trade.
“Now, trade settlement can be as reliable as air transportation,” Gabino adds.
“We're not in the business of crashed planes, which is how the finance industry works now with failed trades and other trade-associated issues. It's getting the right security precautions in place before you trade to ensure the trade never fails to begin with.”
This is the optimal model in which traders can leverage Saphyre’s solutions – a group of solutions the company offered in its test package, Project Zero. Saphyre X was Project Zero before it was branded.
“Over the past year, we’ve tested Saphyre X, tweaked it and now Saphyre X is 100% ready to give organisations the real-time, post-trade outcomes they need,” continues Gabino.
Indeed, with US trade now under T+1 regulations, firms can either ramp up their labour efforts to hopefully make settlement happen in time – or they can leverage cutting-edge solutions such as those provided by Saphyre.
Gabino notes: “Firms are asking themselves: ‘How much labour do I have to add on? Will more labour be indefinite? Are our processes optimal? Am I missing out on opportunities to focus on generating profits? And, if I had automated technology with AI, could this all go away or could we actually maximise and focus on our specialties, save money and make money at the same time?’.
The added labour struggle is already challenging for firms that do not leverage real-time settlement technology in a T+1 environment, as Gabino explains:
“If you imagine 4pm New York time which is T+1, the closing bell rings at the New York Stock Exchange. Trading had just stopped five hours before Tokyo, Hong Kong and Singapore wake up.
“People in New York would have five hours to fix any trade issues at that point. But at that point in the day, people are going back to their families and enjoying their personal time. If an issue happens in a trade - something that pops up on a spreadsheet – they might not know until it is too late.
“It was fine under T+2 because you had a whole other trading day to get that sorted. Not with T+1. You either need more labour, or the right solutions to do it, seamlessly in real-time.”
Saphyre is now providing a way for these firms to complete the trade across any asset class. While it is true many tools exist on the market to solve real-time trade settlement, they are isolated – Saphyre brings it into one place with its operating systems, making the process the same for all.
“Those that took part in Project Zero and saw the benefits of Saphyre X have given us a phenomenal response to how our solutions can solve these burning questions under T+1 – and many are now trialling Saphyre X alongside Saphyre 1,” notes Gabino.
Saphyre: Approved by a ‘shark’
At a time when US trade must adhere to new regulatory standards, Saphyre’s services have received involvement from Canadian businessman and Shark Tank ‘shark’ Kevin O’Leary.
Known affectionately as Mr Wonderful or Maple Man, his involvement in Saphyre’s services behoves the promise Saphyre X has in reliably delivering near real-time trade settlement.
“It was somewhat of a surprise that he is interested in the space,” says Stephen. “We didn’t know if he would understand the nuances – but he’s highly engaged and interested in same-day settlement, as an investor in cryptocurrency firms.
“He was a leading voice on the Robinhood, GameStop fiasco a few years ago, and he was able to pick up what Saphyre can deliver to traders in rapid time. His involvement means a lot,” Stephen adds.
The importance of real-time trade settlement in a T+1 environment
Kevin’s endorsement highlights the importance of T+0 in a T+1 environment.
Indeed, instances like the GameStop fiasco have necessitated the transition from a T+2 to a T+1 environment. In the previous T+2 environment, GameStop’s true shares inventory – at a time when Reddit communities were buying up GameStop stock to combat a hedge fund short on the struggling video game retailer – was not accurately reflected.
However, using blockchain – or distributed ledger technology (DLT) – immutably tracks inventories in real-time transparently.
But blockchain technology alone is not enough to track all the trading transactions – there are millions every second.
“Bitcoin can only process around seven transactions per second,” says Gabino. “While this may work for Bitcoin crypto trading, it is not very efficient in the finance world where there are millions of trade transactions per second.
“This is why, seven years ago when we founded Saphyre, we proposed the idea of leveraging cloud technology in a smart way to bring a real-time view of all transactions on-chain,” he adds.
Of course, many traditional banks still rely on legacy infrastructure and systems, so the job of Saphyre’s founders is just as much supporting financial institutions to understand smart technology and adopt cloud-based approaches.
“What Saphyre is enabling is the same thing as DLT technology, but making that technology available on cloud,” Gabino adds.
Professionals can enter data and documents just once into Saphyre’s technology and it can expedite that information exchange to connect asset managers, brokers, custodians and third-party administrators.
“A lot of these financial institutions will buy technology that works within the four walls of their firm, but if their customers are a hedge fund or bank whose technology is not up-to-date, your ability to drive real-time settlement at speed is hampered, because you’re only as fast as the slowest counterparty you trade with,” Gabino continues.
“Saphyre is providing infrastructure in the cloud to help institutions meet their counterparties – so every party is using the same technology and can achieve trade settlement in real-time.
“If you think about Microsoft Windows before it existed as an operating system, users needed to insert one disc to access Word processing manually and another for Excel. With an operating system, memory is retained when switching between programmes.
“I like to think of trade now as what Microsoft was like with its many different discs. You’ll use one set of tools for stock trading and another for fixed-income bonds. Saphyre is the operating system bringing it all together like Windows does today for Word and Excel. We’re the operating system for finance trading.”
Helping FIs meet compliance with digital authentication
Today, fraud in the financial space – particularly when it comes to the transfer of funds – is growing. Not only do Saphyre’s tools support real-time trade settlement by providing an operating system for finance trading, but they also have compliance front-of-mind.
For all changes to specific trades, Saphyre’s tools digitally authenticate the user making the necessary amendments.
As Gabino explains: “It's so important to digitally authenticate, firstly to stop any malicious fraud or unauthorised access taking place – and secondly, most likely, any accidental fraud taking place.
“There have been cases where traders have been making fixes to a particular trade and accidentally placing their personal checking account number on the receiving end of a trade – it happens.
“With Saphyre, traders can digitally authenticate and authorise a resolution to a trade exception issue in post-trade with real-time automation. So, if you’re in that five-hour window and fixing a trade, you know it will be completed securely with Saphyre.”
In total, Saphyre has six authentication methods to ensure trades are completed as swiftly as possible. This includes eliminating SSI callbacks and trade callbacks to make sure trades are completed as intended.
Without these tools and the ability to authenticate and track this across asset classes, firms have to spend more money on multiple tools, manual labour and redoing trades – resulting in more costs and transaction fees.
Fines from regulators for not abiding by compliance restrictions can also be expected – something wholly avoidable through automated technology.
“The firms that use the right automated technology are going to be able to trade more often,” says Stephen. “You can make more trades on the same day and boost profits too.
“These firms will have a competitive advantage over their peers. The ones that don't gravitate to intelligent tools are going to be left behind, never mind having all those associated costs of not using compliant digital authentication tools.”
Saphyre: Interoperable Solutions
Indeed, one of the great values of Saphyre is having interoperable solutions. For Stephen, this is one of the core values on which the business was established.
“With a philosophy of interoperability, this means we’re a platform that aims to integrate with any of the existing tools our clients have. We’re a third-party solution but we are flexible and can fit into what a financial organisation has in their existing infrastructure.
“For many financial organisations, as you see in fintech, they can either develop the tools, which is costly, or call on a third-party network of fintech payers – they need to focus on their expertise, which is finance.
Stephen concludes: “At Saphyre, we are the ones that have the technology expertise and can change the working environment for real-time trade settlement for these organisations. That’s what we’ve been doing and it’s what we will continue to do.”
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