UCL-developed automated software engine xlinkit paves way for fast, cheap and reliable banking

By automating the validation of XML documents, UCL-developed xlinkit allows financial institutions to speed up the time required to confirm derivative transactions from ten days to one.

The Software Systems Engineering Group at UCL, led by Professor Sir Anthony Finkelstein (UCL Computer Science), developed and patented xlinkit. The software engine supports the validation of human and machine readable documents (XML) in general and over-the-counter (OTC) derivative transactions written using the Financial Products Markup Language (FpML), based on XML. 

The notional outstanding contract value of OTC derivatives increased during the first half of 2019 to $640.4 trillion.  

When it became known that the basic research on consistency management could be used to ensure versions of agreements are the same, UCL protected the IP of the underlying research by patenting it in the US and UK. 

UCL then created a spin-out company called Systemwire, appointed a CEO to run the company, and moved to develop a commercial application of the research results.  

Cost-effective approach 

FpML remains a cost-effective open standard maintained by International Swaps and Derivatives Association for documenting, dealing, and processing OTC derivatives. This innovation has reduced the time required to confirm derivative transactions from ten days to one, significantly reducing risk and exposure for financial market participants. 

The FpML validation rules continue to be defined using UCL’s xlinkit technology, and the adoption of FpML continues to increase in the financial service sector. 

The rules developed by the UCL team help clarify the meaning of derivative transactions defined in FpML and provide precise and unambiguous means for market participants using FpML to electronically trade derivatives to validate the correctness of these transactions. The validation rules are included in the normative part of the standard, which means that the financial market participants that have adopted FpML will have to comply with these validation rules in their FpML messages.  

A recent survey on progress made by firms incorporating the FpML standard gathered data from 33 participating firms found widespread adoption with 76% of the financial market participants dealing with recordkeeping view and 62% dealing with confirmation view.  

Reduced risk for financial institutions 

In addition, 39% of dealers and 30% of technology and asset management participants implement the FpML validation rules defined with xlinkit. The widespread adoption of FpML - 95% of financial market participants now use it for OTC transactions - has brought about a substantial reduction in market and credit risk for financial institutions, by reducing the time required to confirm derivative transactions. 

Message Automation continues to provide a reference implementation of these rules using its xlinkit technology, as it continues to be included in the latest version of the FpML standard (v 5.11). The company “Message Automation”, which markets a product called Message Automation Validator, based on the xlinkit patent, has received £3 million revenue in that same period. 

Following the acquisition of Message Automation by Broadridge Financial Solutions in 2017, xlinkit remains an essential part of Broadridge Financial Solutions software platform, among others, now in use by over 50 financial institutions globally. 

Links

• Professor Sir Anthony Finkelstein’s academic profile 
• Professor Wolfgang Emmerich’s academic profile 
• UCL Department of Computer Science 
• UCL Faculty of Engineering Sciences
• UCL Engineering REF 2021 

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