Case Study: CME

 

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About the Customer

CME Group, the world’s leading and most diverse derivatives marketplace, and The Royal Mint, the world’s leading export mint, embarked on a collaboration to transform the way that market participants can trade gold, leveraging AlphaPoint’s trading platform and asset digitization technology to drive the project.

 

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Business Challenge

The innovative new product, tested in 2017, saw The Royal Mint issue RMG as a digital record of ownership for gold stored at its highly-secure on-site bullion vault storage facility.

RMG aims to change the way traders and investors settle gold accounts, and represents a radical shift for the 1,000-year-old Royal Mint, which has previously relied on over-the-counter contracts traded directly between parties to execute physical gold transfers.

CME Group then developed, implemented and operated the product’s digital trading platform, using AlphaPoint’s issuance and marketplace technology. Taken together, this new service provided an easier, more cost-effective and cryptographically secure alternative to buying, holding and trading spot gold.

Commenting on the project intent, Vin Wijeratne, CFO of The Royal Mint, said, “The Royal Mint has a unique history and a trusted reputation earned over many centuries trading in gold but until now, there hasn’t been a way to digitally trade physical gold.”

“Developing a trading platform with CME Group will satisfy customer demands for faster, cost effective and secure ways to buy, hold and sell gold and complement our existing products. This landmark partnership allows us to combine the world’s leading mint, the best futures trading platform globally and best in class technology.”

 

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Solution

AlphaPoint is the architect of the RMG digital asset trading platform, and customized the system to suit this use-case in partnership with TRM and CME Group for over a year prior to launch. The trading platform offered price discovery and liquidity for market participants, providing an on-ramp and off-ramp for RMG ownership. The technology leverages the AlphaPoint Distributed Ledger Platform, which enables financial institutions to digitize assets, launch markets, and manage asset life cycles.

CME Group intended to launch a digital trading platform operating 24 hours a day, 365 days a year. Unlike the traditional physical spot cost model for investing in gold with management fees and ongoing storage charges levied, RMGs offered ownership of the underlying gold with the option for conversion to physical gold by The Royal Mint with zero storage cost.

The initial amount of RMG at launch was pegged at up to $1 billion worth of gold, offered through investment providers. Further RMG would then be issued based on market demand.

Julie Winkler, Senior Managing Director, Research, Product Development and Index Services at CME Group said, “Developing a digital gold trading platform will help ensure that CME Group’s current product offerings meet the evolving needs of the global marketplace. As we continue to expand our global footprint and develop new products, this platform will help set standards for digital assets in financial markets. ”

Sandra Ro, Digitization Lead at CME Group, added, “Innovation is at the heart of CME Group’s business, and the work we have done on RMG with The Royal Mint is testament to CME Group’s progress on the application of digital assets and distributed ledger technology to financial markets. By collaborating with The Royal Mint, we have set a new milestone in the digitization of value.”

Ro adds that one of the key aspects of making this distributed ledger technology as effective as possible is to release it as open source code ahead of its launch. Blockchain security company BitGo has been working with CME Group to develop the architecture, rules and parameters of the blockchain. Developers, businesses and researchers can now access, evaluate and test the code.

 

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