CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

Dear Members and Friends,

I can hardly believe that we are approaching the end of yet another fascinating year. It is so true that time really does fly by when you are having fun and being kept busy doing what you enjoy most.

Duarte Pedreira and I are fresh off the plane from Cape Verde where we delivered a half-day’s training on forfaiting to the delegates of the annual Afreximbank Structured Trade Seminar. The event also allowed us to strengthen our relationship with this important partner in advance of our annual meeting next year in Cape Town. With some sponsors already on board, we are shaping up very well indeed for our flagship event.

Over the past couple of years, investors and corporations have dedicated a large amount of time and resources focusing on emerging market economies, which, in 2016 and 2017 have been the leaders in terms of performance, GDP growth, trade and flows into the economy. For market analysts, EM sovereign bonds are particularly important as they are the benchmark for the state of their respective economies, in terms of GDP growth, inflation, central bank monetary policy, risk aversion in the markets, not to mention that they are also impacted by movements in the FX market.

Following the sharp correction in EM bonds in February 2016, all the conditions were optimal to make EM a reliable alternative to investment in the economies of the developed world. Valuations had become way too cheap, their economies benefitted from the ever weakening US Dollar, demographics remain highly in their favour, and more importantly, central banks and governments in EM economies had taken investor friendly measures in ensuring the continuous flow of monies in EM credit. 

Yet again, our traditional markets have proved fruitful for investors with trade, one of the main enablers of growth.   

On a different note, in this month’s Newsletter, Marcus Wade, Founder and Owner at Trade Asset Exchange, has contributed an interesting read entitled ''The Blockchain Market’’. Paul Coles, ITFA Head of Market Practice, keeps us up-to-date with the ''Updated/Replaced ITFA BAFT Legal Opinion.’’ Another interesting article is the introduction of another of the new ITFA Board Members, Khilola Turaeva - ITFA Head of Institutional Relations. ITFA is pleased to announce another new member - Xangbo. Our regular feature - Chart of the Month, contributed by Dr Rebecca Harding of Equant Analytics takes a closer look at China-US Trade.

May I remind you that all ITFA members are invited to attend our annual ITFA Christmas Cocktail Party. Each Main Delegate (per member institution) was sent an invite by email, so we would greatly appreciate if you could RSVP on info@itfa.org by latest 1st December 2017. As always, we encourage you all to attend this invaluable networking opportunity! May we kindly point out that this event is strictly for ITFA members only and access to the event is restricted to confirmed guests only. We also look forward to welcoming our ITFA members to the ITFA Educational event titled ''Navigating Trade Finance in a Changing World’’ which is being organised directly prior to the Christmas Party. For more information please read further on in the Newsletter…SAVE THE DATE!

We look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email, info@itfa.org.

Best wishes,

Sean Edwards

THE BLOCKCHAIN MARKET by Marcus Wade, Founder and Owner, Trade Asset Exchange

A term new to me is "the Blockchain market" now being used by analysts and commentators. This seems to describe the market for Blockchain based solutions Payments, Exchanges, Smart Contracts, Documentation, Digital Identity, Clearing and Settlements.  This is very well described in the new Markets and Markets report. According to their estimation the USD 210 million Blockchain market (2016) will experience such rapid growth that it may even exceed USD 2,300 million by 2021 with compounded annual growth rate of 61.5 per cent. This can be further segmented via sector, e.g. Financial (where a lot of start ups are focussing), and by the type of chain, i.e. private, consortium, or public.

Companies like First Bitcoin Capital, whose shares has risen from USD 0.03 (Dec. 2016) to USD 1.79 by the end of August and has fallen back to USD 0.53 due to recent market shocks (Chinese legislation changes) in less than a month, are benefiting from this trend. This is a perfect example of how volatile this market is, and that the rapid gain can fade away at any moment.

It is also worth to mention that the Blockchain Market growth is independent from the wild fluctuation of the  cryptocurrency prices (e.g.Bitcoin price), and mainly driven by the hope of future profit generation mostly through reduced costs of existing processes, that a shared, immutable ledger for recording the history of transactions can bring.

Hype in a "new" market it is not a unique phenomena, and at first glance seems somewhat similar to the .com bubble developed  in the late 90's, where some innovators successfully monetised their ideas and  survived, many did not. Innovation will not bring lasting profits if it can be easily replicated and the entry barriers are otherwise low. Is this the case with the Blockchain market? Are Blockchain based solutions easily replicated once the idea is public domain? 

It is not surprising that the Financial Sector is expected to dominate the market. Apart from them, SMEs are also rapidly introducing blockchain based services because of its cost-effective and time-saving features.

Blockchain Market, by Region, 2021 (USD Million)

Projected Income by Region
Source:http://www.marketsandmarkets.com/Market-Reports/blockchain-technology-market-90100890.html

As seen on the above figures the Asia-Pacific region is expected to grow the fastest, while the largest revenue generating region will be North-America (USA, Canada) and Europe. This is not surprising as currently most of the major blockchain solution providers are all based in the US: Microsoft Corporation (U.S.), IBM Corporation (U.S.), Deloitte (U.S.), Ripple (U.S.), Chain, Inc. (U.S.), Abra, Inc. (U.S.), BitFury (U.S.), Coinbase (U.S.), Circle Internet Financial Limited (U.S.), Digital Asset Holdings (U.S.), Global Arena Holding, Inc. (U.S.), Digital CC Ltd (Australia), 21 Inc. (U.S.)

According to IBM, on the financial sector side, banks are adopting the technology dramatically faster than initially expected. Even by the end of this year, 15% of Larger Banks are likely to implement blockchain. The most effected areas to use blockchain are retail payments, consumer lending and reference data. By 2021 IBM expects more than 65 per cent of all banks to have blockchain in commercial production and at scale.

An interesting example of that is the blockchain powered bond transaction platform of HSBC and R3. The platform is featuring smart contracts technology enabling matching, trading and settlement of U.S. treasury bonds.

"Our goal at R3 is to bring our members together with the strongest technology players and work collaboratively to evaluate and accelerate this technology to production using real-world use cases," said Tim Grant, chief executive officer of R3's Lab (source: http://fortune.com/2016/09/26/intel-blockchain-bonds).

In the Government sector, the Dubai Land Department has created a world-first Blockchain system using a smart and secure database that records all real estate contracts and lease registrations. It is one of the few governments to specifically level serious resources to developing its own Blockchain based solutions. Perhaps established players need to take note that the Blockchain Services market is going to be hotly contested globally and new unexpected players will emerge.

As a conclusion we can see that the blockchain market is going to grow in even greater steps in the financial sector, as it could help to solve many current problems, like fraud and lack of information by providing an open ledger, nevertheless we also have to be careful about which services to use and also being cautious is inevitable at this stage even when we decide about our future investments.

However, in our view it is essential to address real business needs in a scalable, efficient and simple way and treat blockchain based solutions as a potential tool only, not as an ultimate solution for all of our existing business deficiencies (one size fits all does not work), in order to ensure the long term sustainability of the Blockchain Market growth.

Trade Asset Exchange enables its customers to list trade finance transactions to be settled in the blockchain-powered currency, Bitcoin. The platform provides a transparent and rapid negotiation of price and terms and conditions with financial institutions, both in the traditional trade as well as in the supply chain finance space.

To find out more about Trade Asset Exchange please visit the website https://tradeassetexchange.com/.

UPDATED / REPLACED ITFA BAFT LEGAL OPINION by Paul Coles, ITFA Head of Market Practice

The International Trade and Forfaiting Association (ITFA), through its Market Practice Committee, is very pleased to announce that the legal opinion originally issued in 2015 has now been updated and replaced. The new version is made available exclusively for the benefit of members of both ITFA and BAFT, as was previously the case.

The two associations once again partnered with the law firm Sullivan & Worcester in order to ensure that the industry-level opinion was up to date.

The opinion can satisfy part of the requirements under the relevant EU legislation, that requires institutions to have a recent independent and reasoned legal opinion available upon demand, which validates that an institution’s credit protection arrangements are legally effective and enforceable in all relevant jurisdictions.

Providing this opinion continues to demonstrate our desire to reduce the cost and complexity of our members doing business with each other, in this case specifically under the English law version of the BAFT Master Participation Agreement (MPA).

The legal opinion can be viewed in the member area of the ITFA website and is accessible to ITFA members only.

INTRODUCING OUR NEW BOARD MEMBER - Khilola Turaeva, ITFA Head of Institutional Relations

First of all, I am extremely grateful for the opportunity to join the ITFA Board. It is an honour to be a part of this great team.

I cannot say that it was a single major event that brought me to the point where I am today but rather a series of experiences and interactions with people throughout my life. These influences played a vital role in my personal and professional developments, starting within my own family - with my parents who both have a background in banking and finance.

Nowadays there are a few people in the trade and forfaiting market who just like me were born and brought up in large Soviet cities. People who graduated from Soviet schools and studied in local universities during the post-Soviet era. This generation of professionals was the first to have had the opportunity to broaden their horizons and have a career in major international financial centres. And nothing more international than trade finance.

I started my journey in Asaka Bank in 1997, a local large bank in Uzbekistan. There I held different managerial roles in Trade Finance and Transaction Banking. Some years later in 2004 I found myself in a dilemma when I was offered a position in an international bank. The choice which ended by changing my life completely in the years to come was between an already successful career managing a team of 30 people in a large local bank on one hand and on the other to join a much smaller team at ABN AMRO Bank NB Uzbekistan which was then the only fully operational affiliate of a Western Bank in the country.

I joined the bank as Head of Trade Advisory Operations in the Tashkent office. But it was my passion to work with people in an international and cross-cultural environment that made me realize that trade finance goes far beyond traditional letters of credit, collections and guarantees. Two years later, in 2006, I was invited to join the Trade Asset Management team in London for ABN AMRO Bank N.V., a completely new role in a major financial centre. I joined the team in London to work alongside the Fl relationship teams to originate trade transactions from financial institutions in Russia & CIS countries as well as distribute the entire range of trade products to European Fl investors. I really enjoyed those years working for an accomplished global trade bank and working with some of the most experienced people in trade finance. The subsequent acquisition of ABN AMRO wholesale operations by RBS was two years in the making and being a part of this unprecedented merger proved to be a fascinating experience.

The years I spent in ABN and RBS gave me a huge amount of insights and exposure which led to the incredible opportunity to join Bank of America Merrill Lynch back in 2011. The role was to work alongside a former ABN colleague as well as friend and a mentor - Paul Coles - to set up the EMEA Trade Risk Distribution desk for BofAML. Six years after the bank is now an important market player in the global secondary trade market and together with my fellow colleagues in all regional distribution desks we hope to strengthen this position even further.

I have had a unique opportunity to work in major trade banks and to close award winning high profile deals. In my recently appointed capacity as EMEA Head of Trade Risk Distribution at BofAML I look forward to further developing our investor partnerships.

It is a great honour for me to have the opportunity to join the Board of ITFA in 2017. An Association of major importance in the trade finance community which has been fostering the development as well as the sharing of best practices in the market. An Association that provides its members a wide range of services and activities designed to assist the strategic development and day to day running of their organizations.

In my specific role covering Institutional Relations I will continue ITFA’s active cooperation with other forfaiting and trade experts and associations such as the ICC, BAFT and Supranational Institutions, working in close coordination with the Market Practice Committee.

The current challenges in the trade finance activity and in the market in general such as regulatory environment, low interest rates and margins, lack of standardized terminology in trade, to name a few create the need for our organizations to work together and promote joint actions in support of broader trade goals. I strongly believe that the ITFA community together with other partner Institutions has a lot to offer in the way of resources and expertise to bring us together to overcome these challenges.

NEW ITFA MEMBER

Xangbo is a physical commodity trading company, and are majority owned by the McKinsey Investment Office ''MIO'' USA. As such they are a regulated Fund Manager under the Monetary Authority of Singapore. The founding partners of the company are all ex-Cargill.

Xangbo have 7 offices globally; Singapore, Shanghai, New Delhi, Dubai, London, Bogota and New York with the Head Office in Singapore.

Business activities include classical commodity trading (front to back and back to back), commodity pre-payments, structured trade finance, corporate and bank funding trades and very large FX related volumes. Their turnover is approximately USD8mln per annum. They have trading commodity partners in Europe, but from a banking perspective, Europe is less active for them than Asia, USA, and Middle East, hence their desire to join ITFA.

Andrew Fairbrother will be the Main Delegate for all ITFA related matters.

SAVE THE DATE

May we take the opportunity to remind all ITFA members that the ITFA Board, is this year pleased to host an educational seminar titled ''Navigating Trade Finance in a Changing World.'' The event will take place prior to the annual ITFA Christmas party, on the 11 December 2017 between 2:15 and 5:00pm.

The event will be held at Barclays, 1 Churchill Place, Canary Wharf, London, E14 5HP. Attendance to the event is limited to two participants per ITFA member institution. Please register by sending an email by latest 01 December 2017. Please be aware that we have limited seating capacity, therefore admission is restricted to registered members only. Seats will be made available on a first come first serve basis.

Following the educational seminar, the ITFA Board is pleased to invite all ITFA members to join at the Annual ITFA Christmas Cocktail Party. The ITFA Christmas party is going to be held on the 11 December 2017 from 6:30pm onwards at the Victorian Bath House, London. 

The invites have been sent to the Main Delegate of each ITFA member institution, whereby s/he was asked to nominate up to 5 delegates to attend the event. We kindly ask all ITFA Main Delegates to RSVP by sending an email on info@itfa.org by no later than Friday, 1^st December 2017. 

We look forward to another celebration, and encourage all ITFA members to attend this invaluable networking opportunity. May we take the opportunity to remind you all that this event is strictly for ITFA members only and access to the event is restricted to confirmed guests only.

So please...save the date! We hope to see you all in London!

CHART OF THE MONTH by Rebecca Harding, Equant Analytics

Great walls: a closer look at China-US trade

President Trump’s trip to Asia at the beginning of the month dominated the news. Apart from his desire to address tensions on the Korean peninsula, the trip was also intended to address the trade imbalance between Asia and the US, particularly focused on China. Yet it is possible to argue that Chinese exports to the US are a function of the globalisation of US electronics companies. The chart shows the top five Chinese export sectors to the US in 2016 and projected for 2017. The first two, electrical machinery and equipment and components and machinery include mobile phones, washing machines, semiconductors and computers. Clearly, they inherently contain intellectual property which is a key focus for the discussions between the two leaders. These sectors also dwarf trade between the two countries in other sectors which actually might reflect more closely a pattern of trade between an emerging economy and a developed one: furniture, toys and clothing. Top US exports to China include the catch-all “Commodities Not Elsewhere Specified” which proxies well for oil and arms trade, and aerospace. Most of the top export sectors from the US to China show slight declines between 2016 and 2017 except aerospace.

Value of China’s top five export and import sectors with the US (US$ bn), 2016 & 2017

Equant Analytics 2017

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