As we approach the end of 2018, I wanted to take the opportunity to reflect on what has been a milestone year for the Cinnober Group. 2018, our twentieth year, has been one of our best years yet in terms of new client wins, important product breakthroughs and system go-lives across the globe, not to mention our pending transaction with Nasdaq. And we have achieved all of this while undergoing major change across the business. As you know, I was appointed Cinnober Group CEO in August, and I feel very privileged to be entrusted with the responsibility of leading the Group forward.
We are also proud to have received the prestigious ‘Best New Technology Product in Risk Management’ award at the 2018 FOW International Awards in London on 4 December. This is significant external recognition of our TRADExpress CCP Risk solution and testimony to the excellence of our Risk team.
We have great clients, great people and great technology. I would like to thank our clients and employees, who together have achieved so much this year. There is always more to do, but as our efforts to refocus and streamline the business are now largely complete, I believe we are firmly on track to return to group-wide profitability and grow, be it independently or as part of Nasdaq.
Q1: Go-lives in Japan and Dubai, MiFID II changed the European trading landscape
In February, Japan Exchange Group (JPX) went live with two new solutions from Cinnober — a clearing system and a risk system — to improve post-trade services on its important exchange-traded derivatives market and strengthen JPX in the competition for international trading participants. The roll-out for the risk system was completed in early June for all asset classes, including equities, exchange-traded derivatives, government bonds, interest rate swaps, and credit default swaps, creating a cross-asset risk system sitting on top of five JPX clearing system silos.
The new JPX risk system performs massive sets of calculations in real-time and allows efficient risk monitoring using one single dashboard for over-the-counter (OTC) and exchange-traded instruments. The system is based on Cinnober’s TRADExpress CCP Risk solution, which is a multi-asset class risk solution tailored specifically to the needs of central clearing counterparties (CCPs) and the challenges that have emerged in today’s increasingly complex clearing landscape.
Dubai Gold & Commodities Exchange (DGCX), the leading derivatives exchange and clearinghouse in the Middle East, upgraded their integrated trading and clearing solution from Cinnober to the latest version of the TRADExpress platform. This resulted in further enhanced business development capabilities and improved bandwidth usage due to a more refined trade and market data protocol. As the new version went live, DGCX launched the region’s first, and world’s only, exchange-traded Shari’ah Compliant Spot Gold contract (DGSG). In H1/18, DGCX recorded its best first half in its 13-year history, with trading volumes up 44% year-on-year and on November 20th, DGCX broke its all-time annual trading volume record.
2018 brought significant change to the trading landscape with the introduction of MiFID II in the EU on January 3. When the new regulations came into force, Simplitium, a Cinnober Group subsidiary, was ready to support the market with its TRADEcho solution. TRADEcho, which is a joint venture with the London Stock Exchange, has since helped hundreds of firms achieve regulatory compliance. Also in the first quarter, Simplitium released its new user interface for ModEx, the catastrophe modelling platform for the insurance and (re)insurance industry. This was a significant milestone in the market, bringing modern technology to a field which has long failed to prioritise the user experience.
Q2: New commodity exchange launched in Singapore, breakthrough in risk modelling for insurance industry
In the second quarter, the new derivatives exchange and clearinghouse, Asia Pacific Exchange (APEX), based in Singapore, launched its new market operating with Cinnober’s real-time clearing solution and the Irisium surveillance platform.
Also during this quarter, Simplitium signed its largest deal to date when Guy Carpenter, one of the leading global reinsurance brokers, signed an agreement to use ModEx for their internal catastrophe risk modelling. This marked a major breakthrough in the evolution of ModEx, the first independent multi-vendor catastrophe risk modelling platform for the (re)insurance industry, proving its viability to the market.
Minium, the Cinnober Group subsidiary focussing on post-trade processing and real-time risk management for banks and brokerages, also saw great progress in the second quarter. In June, Minium signed its first client, Marex Spectron, to deliver the next generation real-time risk management platform to support the growth of Marex’s agency business in exchange-traded derivatives and FX.
Q3: Strengthened relationship with Stock Exchange of Thailand, continued momentum for Simplitium
In September, Cinnober strengthened its relationship with Stock Exchange of Thailand (SET) who signed a new seven-year license agreement for a multi-asset trading platform with ancillary functions, such as real-time index calculations.
SET has operated successfully using Cinnober’s solutions since September 2012, with a track record of 100% uptime. During this period, the Thai exchange has strengthened its position in the market to become the most liquid equities exchange in the ASEAN region. In addition, derivatives trading volumes and open interest have grown steadily, while business from foreign investors has also increased.
Simplitium’s momentum continued in the third quarter when it gained another ModEx client. Chedid Re, a reinsurance broker based in the MENA region, signed an agreement to use CatRisk Solution’s Middle East and Africa Earthquake Model on ModEx. Simplitium also launched Open Exposure Data (OEDTM), an open data schema for the insurance industry delivering greater transparency and more robust import of exposure data.
On 14 September, Nasdaq made a public cash offer to Cinnober’s shareholders and warrant holders to acquire all outstanding shares and warrants. The acceptance period of the offer commenced on 29 October and expires on 14 December subject to any extensions. More information on the offer can be found here: https://group.cinnober.com/investors.
Q4: Busy end of the year, milestone for precious metals service
While other firms may have been winding down for the end of the year, we saw an extraordinarily busy last quarter of 2018. In November, Cinnober signed two new clients.
Bitstamp, one of the world’s leading bitcoin exchanges, selected Cinnober to replace its in-house matching engine with Cinnober’s TRADExpress Trading System in a move to increase capacity and capabilities of its marketplace. Bitstamp has established a strong position of trust in the digital currency trading community. By upgrading their trading technology to further improve performance and stability as interest from investors and regulators grows, they are able to demonstrate their firm commitment to providing a safe and reliable marketplace.
Cinnober also announced an agreement with Abaxx Exchange to provide trading and clearing solutions for their new commodity exchange and clearinghouse to be launched in Singapore, initially focusing on Liquefied Natural Gas (LNG) derivatives. It is great to be part of setting up this venue for price formation and trading of LNG contracts to make global energy trading more efficient. With the help of our proven solutions, Abaxx can rapidly deploy the infrastructure, functions and services needed to operate a safe, fair and orderly marketplace.
We were also happy to announce being granted a patent for a key innovation in our real-time clearing solution related to risk assessment. The patent demonstrates Cinnober’s leading position in the development of next generation post-trade solutions.
Simplitium reached additional milestones with the launch of LBMA-i market data. LBMA-i is the trade reporting service for the London Bullion Market Association delivered by Simplitium. The market data makes it possible for market participants to gauge the shape and size of the OTC global precious metals market for the first time ever.
The fourth quarter also saw the release of reinsurance capabilities in ModEx. This release brought highly sought-after functionality to the ModEx modelling platform, enabling firms to develop an even greater understanding of their risks.
Minium also reached a key milestone in Q4, delivering the first phase of their risk solution to Marex Spectron, who started using the solution in parallel mode.
Finally, we ended the quarter on a high - being awarded the ‘Best New Technology Product in Risk Management’ for our CCP Risk Solution at the 2018 FOW International Awards.
Looking back at the year, it is gratifying to see that our efforts across the Group have paid off. Not only have we achieved key client wins, but we also reported a record level of profitability so far this decade in our Core division, providing exchange and clearing technology to marketplaces and clearinghouses globally. Our Minium subsidiary is on track for a phased delivery of a risk management system to Marex Spectron. Minium has also established a strong pipeline for further sales and started to prospect for its first post-trade pilot. Looking at our Simplitium subsidiary, we have seen great momentum with their ModEx offering this year, signing the largest deal the company has had to date. We have worked hard to refocus and streamline the business, I am excited to see what 2019 brings.
Peter K. Lenardos