# Baton Systems

## Redefining FX post-trade processing

**Award winning Baton Systems is looking to shape the future of payments and post trade processing. Its**  
**distributed ledger-based platform enables real-time visibility and movement of currencies and assets,**  
**reducing settlement risk and increasing available funding and liquidity. e-Forex spoke with the company’s**  
**Founder and CEO, Arjun Jayaram, to find out more about how Baton Systems is introducing fully**  
**interoperable digital solutions, from trade matching through to settlement, and the impact this will have**  
**on the FX market. Arjun was also joined by three colleagues from Baton’s senior management team: Alex**  
**Knight, Head of EMEA; Jerome Kemp, President and David Ornstein, COO; to discuss the significance of**  
**Baton’s recent completion of the world’s first interbank riskless FX settlement outside of CLS.**

**Arjun, can you tell us about your**  
**previous experience in Fintech and**  
**explain how that led you to tackling**  
**a very specific challenge in the**  
**capital markets space?**

Baton Systems is actually the second  
company I’ve founded, my first  
company was acquired in 2013.  
Following its sale I moved to Twitter  
and from there into payments.  
My background is in engineering,  
technology and product development  
and so I was able to develop a  
deep understanding of the complex  
constraints of the problems in  
the payments arena. Through a  
relationship with the CME, I was  
introduced to capital markets and to  
Baton’s now President, Jerome Kemp,  
who was at Citigroup at the time and  
actually became our first client.

As I learnt more about payments and  
post trade, I came to realise there are  
fundamental structural issues that  
play a massive role in the colossal  
level of settlement risk faced by FX  
businesses every day. My passion to  
solve this problem and democratise  
access to the financial market  
infrastructure necessary to execute  
real-time, riskless settlements without  
the burden of pre-funding led to me  
founding Baton Systems about six  
years ago.

We are now at an exciting stage  
in our corporate evolution, we’re  
rapidly maturing and beginning to  
really scale the business. One of the

challenges we now face is ensuring  
we continue to protect the same core  
values and strong ethos that have  
been integral to our success to date.

**Please tell us a little about your job**  
**and day to day responsibilities at**  
**Baton Systems.**

As Founder and CEO my focus  
is primarily on strategy from a  
technology and product definition  
perspective. As I mentioned, we  
are now moving to the next step as

we start to see non-linear growth  
with interest continuing to increase  
from firms keen to take control and  
effectively address the risk, liquidity  
and funding issues that have plagued  
FX settlements, and other capital  
markets payments processes, for far  
too long.

At the moment, we move somewhere  
between $12 billion to $20 billion  
of asset value each day, but I am  
focused on how we can grow this  
by many multiples. That scale will

Jerome Kemp joined the firm as President last year

---

Alex Knight brings a wealth of global experience in the industry

come from focusing on not just  
on the technology and product  
but by thinking about our whole  
organisation, which is why we’ve  
been laser focused on augmenting  
our team with the right people with  
the necessary skills and experience  
to help us to achieve our growth  
ambitions.

**Baton has certainly attracted a**  
**number of top class technology,**  
**payments and capital markets**  
**veterans. Who are the key members**  
**of your executive team and what**  
**roles do they each play in helping to**  
**drive the business forward?**

I’ve already mentioned Jerome Kemp,  
who joined Baton initially as a Senior  
Advisor and was appointed President  
last year. He’s a leading industry  
practitioner with over 35 years of  
market experience, most recently as  
Global Head of Futures, Clearing, and  
FXPB at Citigroup. Last year he was  
inducted into the FIA Futures Hall of

Fame. Jerome is someone I respect  
a lot and as Baton’s president, he is  
now empowered to work towards  
finally solving the key post trade  
and structural issues which kept him  
awake at night whilst in his previous  
senior leadership roles at Citi and J.P.  
Morgan.

Like Jerome, Alex Knight also brings a  
wealth of global industry experience.  
Alex joined Baton as Global Head of  
Sales and EMEA in 2019, following  
18 years at Citi where he held a  
number of roles in innovative FX  
business lines including Global Head  
of FX Margin Trading. Together with  
Jerome, Alex is helping us to grow  
the commercial side of the business.

I brought in people like Alex and  
Jerome because they are experienced  
in not just building businesses but  
they’ve witnessed first-hand the  
extensive challenges that limited  
access to safe settlement mechanisms  
and 24 hour settlement cycles can

have on both a banks’ risk profile and  
it’s bottom line.

We’re also privileged to count both  
J. Christopher Giancarlo, Director  
of The Digital Dollar Project and  
former CFTC Chair, and Bill Coen,  
former Secretary General of the Basel  
Committee on Banking Supervision,  
as Senior Advisors to Baton. Their  
backgrounds speak loudly to the  
importance of the regulatory  
agenda relative to Baton’s objective  
to transform post-trade market  
structure.

Most recently we have added David  
Ornstein to the team. He joined  
Baton as COO this January. David  
brings 25 years of capital markets’  
experience, including 13 years as  
COO of Barclays’ Global Markets  
business where he was particularly  
focused on both the regulatory  
change and business reengineering  
agendas. He brings to the team a  
deep appreciation of the intractability  
of legacy infrastructure in financial  
markets along with keen insights as  
to how to help institutions better  
optimise their end-to-end operational  
workflows and ultimately reduce  
costs.

**Turning to Alex, what type of**  
**firms are now working with Baton**  
**and looking for it to meet their**  
**demands for capital efficiency, risk**  
**management and the competitive**  
**advantages that are always**  
**associated with the use of next**  
**generation technology?**

If you look at our client list, you’ll  
see it’s the world’s largest financial  
institutions where our main focus  
has been so far. We are continuing  
to have very detailed discussions  
with nearly all of the major banks  
globally around the critical issues  
that they have regarding FX settlements  
and intraday liquidity management

in their capital markets businesses.  
We are now starting to broaden  
our focus as we seek to serve banks  
outside of that very top tier, as  
well as members of the buy-side  
community.

The challenges that most large banks  
face is that they operate their post  
trade systems on legacy platforms  
and those legacy platforms are  
generally siloed. This adds to the  
complexity of the problem when  
these firms consider how to reengineer  
their post trade processes - and as we  
know, ripping out and replacing critical  
elements of the  
post trade infrastructure is risky, time  
consuming and expensive.

As such, whilst we find when  
speaking with potential clients  
that the value proposition of our  
blockchain-inspired Core-FX solution  
is well understood, that with this  
technology the riskless settlement  
of all currencies pairs, at a time they  
choose, without pre-funding would  
be within their reach, we spend  
a lot of time demonstrating the  
interoperability of the Baton platform  
with existing legacy systems. These

conversations focus on how we can  
securely and seamlessly integrate  
into existing systems and processes  
to deliver the flexibility, transparency,  
audibility and non-repudiation  
benefits of distributed ledger  
technology (DLT) in a manner that

doesn’t disrupt their existing process,  
but rather enriches it.

**Jerome, a major challenge for**  
**financial market participants is how**  
**to deal with the trillions of dollars**  
**of settlement risk and how to tackle**  
**intraday liquidity costs. Recent**  
**updates to the FX Global Code**  
**included changes to recommended**  
**best practice for FX settlements.**  
**What was Baton’s response to these**  
**challenges and in what ways do they**  
**underline the advantages of your**  
**own solutions?**

This is a very important point and one  
which I believe is going to be critical  
in terms of the overall evolution of  
the post trade space. These processes  
currently run on hardwired, server  
based networks and the move to fully  
digitised post trade infrastructure  
over the next few years will be reliant  
on the regulators stepping in to  
encourage innovation.

---

**Baton Systems - Redefining FX post-trade processing**

We are very engaged with regulators  
in the US, the UK and elsewhere.  
Indeed both Arjun and I were recently  
vited to sit on the working group  
of the Committee on Payments and  
Market Infrastructures (CPMI) charged  
with examining the expansion of PvP  
solutions. Our regulatory engagement  
is focused on the evolution and  
development of approaches that  
will accommodate the considerable  
transformational impact that  
companies like Baton are having on  
the post trade environment.

Global regulatory bodies are keen to  
see the post trade space evolve and  
are very inclusive in terms of their  
approach. I believe that by and large  
global regulators are encouraged  
by the progress being made. We  
are essentially constructing a new  
ecosystem which allows for a very  
significant expansion of riskless  
settlement for FX transactions, beyond  
what is currently possible today.  
Regulators are very keen to see access  
to PvP settlement within the reach

of significantly more participants  
and cover a much greater range  
of currencies relative to the status  
quo, and Baton is proving that this is  
indeed possible.

**And coming back to Arjun, Baton’s**  
**Core-FX solution has been in the**  
**news recently after Wells Fargo and**  
**HSBC completed the first interbank**  
**PvP settlement outside of CLS using**  
**distributed ledger technology from**  
**Baton Systems. Can you explain**  
**the significance of this, for both the**  
**company and the industry?**

FX is the largest OTC market with  
close to $19 trillion of average daily  
volume exchanged, but the only venue  
where those trades can be settled  
with the benefits of PvP is CLS, which  
has 78 members currently and only  
supports selected currencies. CLS does  
solve a problem and has significantly  
improved the FX market, but it is a  
partial solution to the market problem.  
The number of participants operating  
in the global FX trading ecosystem

is in the tens of thousands, all of  
whom need access to safe settlement  
processes. Furthermore, there are over  
100 currencies that need to be settled.  
We are focused on delivering the  
technology required to safely settle  
those FX trades that are currently  
ineligible for PvP protection via CLS,  
in order to extend the benefits of riskless  
settlement to the entire market.

By using DLT, we have enabled banks  
to connect into Baton’s CORE-FX  
to move funds on a PvP basis in  
commercial bank money. Using  
Core-FX the settlement process,  
which used to take 24 hours, can  
now be completed in three minutes.  
Counterparties can settle on-demand,  
multiple times a day without the  
liquidity constraints that pre-funding  
introduces. This is achievable with  
full transparency and extensive  
flexibility that allows the parties to  
not only choose how they net or  
whether they settle in gross, but also  
to align settlement time-frames with  
corresponding liquidity events.

It is not just the technology that we  
offer, but also the governance and  
structure we provide with the Baton  
Rule Book, which enables participants  
to achieve legal settlement finality.

**Can you elaborate on which**  
**currencies you cover and what the**  
**process is for increasing the number**  
**of currencies?**

Core-FX is currency agnostic, we have  
actively settled 18 currencies to date,  
and have the ability to quickly add any  
currency to the network, including  
emerging market currencies. These  
currencies have experienced rapid  
growth in traded volumes over recent  
years, yet they remain ineligible for  
PvP settlement via CLS. They are often  
highly volatile with shallow liquidity  
and this leads to more constraints  
being applied in terms of the trading  
facilities made available.

**As has been mentioned, Baton CORE-**  
**FX is based on DLT. David, why is**  
**this technology such a good fit for**  
**payments and post trade services in**  
**meeting this challenge and why has it**  
**not been done before?**

I used to see a lot of start-up pitches  
based on DLT, but often those  
solutions were too much “Tech” and  
not enough “Fin;”. By this I mean  
that they didn’t really understand  
the complexity of the actual financial  
ecosystem well enough to understand  
the journey from the test bench to live  
deployment and actually delivering  
business benefit. Many of the FinTechs  
who plan to rip and replace aren’t  
adequately cognisant of the challenges  
in delivering essential infrastructure  
in production, at scale. Organisations  
can’t absorb change that quickly  
and won’t be able to secure the  
permissions needed to do that. You’ve  
got to be able to very clearly justify  
why you’re tinkering with an essential  
service.

The way Baton is using DLT is different. It  
builds rails which run alongside existing  
systems and infrastructure. Baton  
facilitates the move from centralised  
to decentralised settlement without  
disrupting existing functions. It provides  
a viable alternative to the current  
process and workflows and facilitates a  
responsible and progressive migration,  
while offering full interoperability with  
existing legacy technologies, so there  
is no immediate need to try to rip and  
replace 30 years of code.

**Finally Arjun, you have previously**  
**said that the world of clearing and**  
**settlement is on the threshold of**  
**revolutionary change. How ambitious**  
**are Baton’s plans for playing a pivotal**  
**role in this and how optimistic are you**  
**that you and your team will be able**  
**to achieve them?**

We are very optimistic. Our mission is  
to democratise the settlement process,  
improving it greatly from the current  
system characterised by centralised  
venues which exclude so many

participants from the opportunity  
to safely settle their FX trades. You  
cannot solve this problem until you  
solve the market structure issues. I’m  
excited because this is not a concept,  
a prototype or a project, we’re now  
laying the rails and in a live production  
environment actually executing riskless  
settlements on a daily basis. What  
we’re doing is truly game changing.

Every time we onboard a bank, that has  
a snowball effect and leads to further  
adoption. We can add unlimited banks,  
from multiple geographies, who will  
then be able to eliminate risk by using  
our platform for settlement. We see this  
as very much a win/win situation, not  
only for the large sell side banks, but  
also for their clients downstream and we  
are already seeing a significant uptick  
in interest following our December  
announcement. The whole team and  
myself included are very excited about  
ur progress so far and the significant  
role we are playing in the long-awaited  
evolution of payments and settlements  
in the financial markets.

---

**DAVID AND I AND THE WHOLE**  
**TEAM ARE VERY EXCITED**  
**ABOUT OUR PROGRESS SO**  
**FAR AND THE SIGNIFICANT**  
**ROLE  WE ARE PLAYING IN THE**  
**LONG-AWAITED EVOLUTION OF**  
**PAYMENTS AND SETTLEMENTS**  
**IN THE FINANCIAL MARKETS**