Today, Finastra announced that its Fusion Summit over-the-counter (OTC) derivatives solution will be integrated with the Fragmos Chain post-trade solution. The integration will be available on Finastra FusionFabrice, the company’s app store. Fragmos Chain is expected to go into production in early 2023.

To explore the role of the Fragmos Chain, it’s worth taking a quick look at the recent UK mini-financial crisis, which was linked to derivatives. Interest rates are crucial for life insurers and pension funds, so they protect against significant movements.

With the mini-crisis, there was no problem with how interest rate swaps worked, but with the fact that interest rates moved so substantially after the new UK Chancellor made unexpected economic plans. That meant that the massive collateral demands created a liquidity problem because some of the insurers and pension funds had to sell assets quickly to meet the demands.

So where would Fragmos Chain fit into this scenario? You are not directly involved in trading between two counterparties, which may be two banks or a bank and an insurer. Instead, the record of the agreed transaction, the confirmation, is verified via the blockchain. This single shared record prevents business interruptions where one party thought the deal was different. And it eliminates the need for reconciliation.

Many derivative contracts are not static. There are modifications, which again can be recorded by the blockchain, just like cash flows.

So, in a mini crisis, each counterparty can clearly see the status of all their derivatives registered on the blockchain.

The derivatives association ISDA created a standard, the Common Domain Model (CDM), which not only standardizes data but also processes. And Fragmos Chain uses the CDM.

Fragmos Chain uses the R3 enterprise blockchain, although users can access the functionality via API instead of hosting a node.

This is one of many blockchain solutions targeting the derivatives sector. The DTCC is in the final stages of its upgrade from DLT to its Trade Information Warehouse, the post-trade solution for credit derivatives that processes more than $10 trillion annually. It was developed by Axoni, which has another blockchain offering for equity swaps. Two other fintechs, Baton Systems and Symbiont, also have derivatives post-trade platforms used by banks.