Deep dive on the theory underlying our solution
Per economic zero-sum-game-theory, all available forex, rates, and commodity market instruments worldwide added up will return zero profits since the earnings of one stakeholder are the losses of another one. This is because FICC markets are speculative ones, while the stock market, for example, is a non-speculative market. Every single profit is taken from other market participants whether banks, corporations or day traders. However, this does not mean that in every individual transaction there is a winner and a loser since there can be mutual advantages due to different currency positions held for varying amounts of time. So, positions will always offset each other in the markets. For corporates/businesses speculation is usually nothing they like to participate in (exempt from a few financial services firms) and hence reliable rates and spots are clearly preferred over uncertain gains.
That is exactly what we are doing by giving customers fixed or capped rates with defined bandwidths of risks and for agreed on periods, matching these preferences with those of other corporations directly (if you like to put it this way we are taking the peaks out). Thus, many positions will eliminate each other and in consequence, reduce the residual risk which needs to be transferred to “speculators” and other financial intermediaries in the derivatives market and/or securitized product market (yes we are currently planning to securitize and sell parts of the residual risk). However, since based on our statistical analysis at least (the number is quickly growing with global size) more than 60% of positions can be cleared among customers directly only for the decreasing number of remaining risk positions hedging contracts need to be bought, which is a clear cost advantage given to the customer in addition to not having to run own treasury systems and risk management departments. Beyond this, all risk positions are anonymized using an alphanumeric identity protection logic and thus total privacy is absolutely ensured and nothing the customer needs to worry about. More so all positions are only transferred to our mutual insurance pool and matched there and hence no direct customer to customer transfers will ever be used. At the same time, the pricing is as mentioned before set dynamically based on our real costs and billed at the end of the previous month in advance for the next month (forecasted real costs) while the final adjustment will first happen at the end of the year (see pricing details below). The premiums are invested – to insurance standards – in the capital markets, driving the need for hedging instruments further downwards as the insurance asset management returns are taken into account in our calculations of residual risks to be covered by derivatives and in consequence also in the premium calculations. With this kind of quasi-internal FICC risk pricing and some active decisions made on market data, we again become a market maker in FICC by taking lots of volume out of the original derivatives markets and thus impacting the general market pricing of FICC instruments in favor of our customers and other stakeholders.
(as of 2016)
The market size for such an insurance solution is 2,637bn USD with Asia being the largest market (1,058bn USD), North America (910bn USD) second largest and Europe (712bn USD) third. At the same time, it is crucial to quickly expand internationally and win customers on all continents at the same time to get contrary risks position on the platform (network effects apply).
Additionally, a value of at least 385bn USD in estimated revenues could be added coming from financial institution risk management itself.
All values are double checked by first using a bottom-up calculation approach derived from the KPMG study and secondly by using macro FICC reports from the Bank for International Settlement.
The according Bank for International Settlement (BIS) data is as follows: Gross market value in bn USD for FX is 883, for Rates is 1,477, and for Commodities is 283, giving us a total of 2,637bn USD. (Nominal amounts outstanding according to BIS respectively are 15,965bn USD, 19,722bn USD, 1,949bn USD resulting in a total nominal market value of 37,636bn USD)
Thus the market size of 2.64tn USD is clearly confirmed and likely even exceeded especially if considering current market growth rates in excess of 10% annually; thus reaching 3.7tn USD by 2020
as the other numbers reflect 2015 data.