The Dark Knight of Dark Pools: Carmenta

Dark Pools”, not as scary as the word might sound, are enablers of private exchange between Buy Side and Sell Side Institutions in the market. This modern matchmaking tool tries to keep the details of these big trades concealed from general public, at the same time aiming at keeping the High Frequency Traders at bay, from eating away the bread.

Trading in Dark-Pools has increased in tandem with high frequency trading activity. There can be dark pools for equity, fixed income or derivatives, like in the case of Carmenta. Dark Pools face regulatory challenges from regulators and central exchanges, like in case of new MiFID regulations. Below is an example of a European Equity Dark Pool, showing how heavily reliant the Big Institutions are on these Dark Pools !

Carmenta builds innovative technology solutions that helps their clients to solve some of the most critical problems in the financial markets today, allowing them to be more efficient, cost effective and ultimately to provide their customers with better levels of service. They are the Dark Pool in the space of Exchange Traded Derivatives Market.

FundEast got talking with Mr. Eamonn Ling, who has over 20 years of experience working principally in the financial services industry. He has spent the early part of his career as a trader in financial markets, rising to senior management roles over the next few years in the derivatives market at major banks. He has gone on to start several successful businesses, and has also worked in the private equity and alternative asset management industries. Currently the Co-Founder and COO of Carmenta Pte Ltd, Eamonn has the following to say about his company.

Why FinTech? What makes your technology stand out from the rest of your competitors? How did you come with the idea for your Fintech.

Carmenta is a start-up based in Singapore with an experienced management team. In-between the 4 Co-Founders, we share 90 years of work experience in the financial markets and in developing trading platforms for the financial institutions. We have had the privilege to work for some of the biggest companies, our development team came from Judith Capital, having worked before at Barclays Capital. The CEO and myself, have worked together at a couple of big international banks.

We’re a B2B technology company, operating in the “Exchange Traded Derivatives Market”. Our clients are the biggest users of listed derivatives, such as global banks and their clients who use this derivative space as a key to managing their risk exposure and hedging. Listed Derivatives is a huge business, last year according to the Futures Industry Association,  around $16bn Future Contracts were traded around the world, which is growing by 8-9% YoY driven primarily by changes in regulation and regulatory desire for more transparency.

We have a state of the art technology which enables clients to solve a number of problems which are inherent in the market, as the markets right now are very manual and voice brokered. We specialize in large orders, which need to be worked quite carefully to avoid scaring the market. We are helping our clients to execute better for their clients by matchmaking anonymously.

Our system has a unique matchmaking algorithm, which makes this matching anonymous, i.e. one doesn’t know what anyone is doing and just knows that something is going on. This prevents gaming and market manipulation in the markets. Our ideology being, If you can’t see what’s going on in the exchange, there is no point spoofing it either, as nobody is able to see it.

Our platform also enables mid-market matching, for example in the case of SGX contracts, the compliance and execution, our clients are able to trade in the middle rather than at the buy or the sell price, which makes it price efficient for the clients.

Our aim is to help our clients i.e. “Big Global Banks” optimize their order flow, Big banks have enormous amounts of orders coming in internally from in-house trading desks and externally from their clients like Hedge Funds and Pension Funds. Most of the times, these Banks do not have the technology to optimize this order flow internally and obviously the banks make the most money facing both sides of the transaction.

We help banks solve this problem, the stuff which doesn’t get solved internally, we offer them to use our platform which has orders from different institutions. So, we have an internal and an external solution, with our Bang for the Buck being in the external solution we offer.

What excites you about the current Financial Environment we live in ? What opportunities does it present ?

We saw there was an opportunity, the situation was ripe for an electronic solution, we had access to people who we could work with and build us the solution, we knew the problems and we also knew the people in the business who we needed to work with.

Financial industry is changing a lot as regulatory and capital requirements are changing. Significant cost cutting is going on, technology is changing the way everyone needs to run their businesses, Banks know that they need to be a little bit more agile, they used to buy tech from big companies like IBM and Microsoft, but now they have realized that they need to work with the FinTech companies which are disrupting the world of finance.

Can we say that you are Market Making in a way ?

We are not market makers, we are just a broker and matchmakers. We don’t take any principal risk ourselves, we are literally just matching the buyers and sellers without giving away any information to people who are fishing around.

Most of the clients are Buy Side users, Asset Managers and Pension Funds and Global Funds, we work with high frequency trading companies as well.

Is there a specific Market you focus on? How do you go about marketing your business?

We are able to speak to banks all over the world but because of the sandbox we can only work with MAS regulated entities.

We are very fortunate to know the people (clients) who we are working with and looking forward to work with.

How do you go about looking for Investors ? How did you get funded ?

We will not be for many investors as we are very domain specific in what we are doing here. Generally, when we are raising funds, which we aren’t looking to right now, we ask our agents to help us to have access to the sort of investors we want specifically.

We are not really in the business of publishing to the whole world, what we are doing. We try to qualify investors quite carefully, before we speak to them so that it saves both their and our time.

We are pre-revenue looking for Series A to get us through live launch, which should happen by Q1 next year. We raised around $1 M from a Big Family Office and a Technology Company. Now we are talking to strategic investors for our next round.

Do you think Fintech is destroying jobs ?

Technology has significantly reduced the headcount in banks, the trading desks no longer have 10 traders sitting on their desks, but instead have 10 algorithms running, trying to optimize operations.

Banks will change, because of the evolution happening in AI and Machine learning, there would be decisions which would be less human and more algorithmic. We are obviously not disrupting jobs as we are looking to work with the banks and optimize their trades, but there are a lot of startups eating the lunch of these banks.

These startups are disrupting and are the kind of guys will eat the high margin businesses of the banks ( Remittances, Payments and Lending ) and leave the banks with the regulatory heavy and low margin businesses like current accounts and savings.  Banks would have to get leaner and it is indeed a difficult environment for them.

If you go back X years, Would there be something else different you would have done?

Our biggest unknown would be how long it will take to onboard the banks. We always knew that that process would be slow but we are making progress. We could be more pushy about things but that would be upsetting people, so we have had to find the right balance.

We are fortunate to know the people in charge of running the businesses, that are interested in our business. Even though these known people, would really want our services as it would help their business, the problem lies in the banks trying to get things negotiated and agreed upon, as a lot of compliance and regulatory issues with different departments within the banks have to be managed, and it eventually boils down to them not having enough resources to pull the deal through, due to lack of time or new regulations etc.

It is slightly changing with banks now, as they are themselves incubating and innovating. When we are lucky, banks would themselves appoint project managers to us to co-ordinate with the internal stakeholders.

Where do you see yourself and your company in the next 3 years ?

We are hopeful of getting some decent tractions, and getting some good exit opportunities. If we do, we should be able to sell ourselves.

We have cases of technology companies similar to us, but we do not spend too much time thinking about exits at the moment. If we solve our customer problems and if we are helpful, everything else should fall in place.

What has been the proudest moment in the history of your business ?

Getting sandboxed or being finalists in UBS’s Finance Challenge are all secondary, the proudest moment put simply would be getting the team together and also signing the first round of funding.

It’s kind of like working hand in hand and knowing that we had the funding to put the team together.

A word on your competition ? What’s your company’s edge ?

There is probably technology around which can do what we are doing already, there are a lot of equity dark pools. When we ask why not use these equity dark pools to do the Exchange Traded Derivatives, they refuse to as it is not the same. We are also doing things differently.

Technology is good but it’s not changing the world, it’s built for purpose. If the banks would do it themselves, it might take them 2-3 years to bring it to the market and they probably might mess it up or go over budget, so it’s much easier to just use the services of a company like ours as we do it 24/7, 365 days a year. We are here with a purpose and we are ready to go!

People who could compete with us, have some issues. Where we are really disruptive is, In our Pricing.  Brokers will charge anywhere around $1.50 – $3 per contract, whereas we charge only a fraction of that, as we cut down heavily on the transaction, implementation and running costs.

We believe technology like Carmenta’s is really disruptive striving to make our markets more efficient and transparent. Please feel free to contact the FundEast Team at info@fundeast.com to know more about Carmenta Pte Ltd and or FundEast.

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