Michael Albanese is the CEO of Tradewind Markets. With over 20 years in the industry, Michael previously held multiple leadership positions at J.P. Morgan, including Global Head of Agency Collateral Management, Global Head of Securities Clearance, and Head of Japan Trustee business, enabling banks, broker-dealers, asset managers, corporations, and insurers to effectively manage collateral cross repurchase agreements, securities loans, and derivatives trades. Michael is experienced in market infrastructure across securities markets, online brokerage, and leadership of complex businesses.
Tradewind Markets has built a digital platform for precious metals; they facilitate trading, supply chain management, settlement, and custody of these assets.
Could you share with us the genesis story of Tradewind Markets and how it was spun out of IEX in 2016?
Tradewind Markets was launched as a company through the Investors Exchange (IEX), the only exchange that aligns the interests of the entire trading ecosystem, from investors to brokers to public companies. Tradewind began as a concept with the mission of improving how the precious metals market functions and quickly attracted investor interest from Sprott, a global investment manager specializing in precious metals and real assets investing. Supported by shareholders with an interest in improving markets and equipped with a strong team of employees, Tradewind set out to create the technology that enables physical metal to be controlled digitally.
In 2018, Tradewind created VaultChain™ Gold and Silver as a way to make it easier, more cost effective and more secure to buy, sell, custody, settle, and own precious metals digitally. The gold or silver purchased through VaultChain™ is held at the Royal Canadian Mint with clear title of ownership reflected on the distributed ledger. Buyers and sellers of precious metals are able to purchase these assets via a network of Tradewind dealers.
Our founding relationships with IEX, Sprott, and many of our shareholders have helped us vastly improve how the metals market operates. We continue to help all segments of the precious metals ecosystem — producers, banks, dealers, refiners, and investors — benefit from a more secure, cost-efficient market.
You’ve had a phenomenal career including most recently being Global Head of Agency Collateral Management at J.P. Morgan. What was it about Tradewind Markets that enticed you to join as CEO?
During my career in banking, I focused on securities markets and collateral management, managing businesses that enabled securities to be traded, settled, borrowed, and lent globally — regardless of the physical location of these securities. Institutions such as banks and asset managers were able to deploy these securities as collateral for funding purposes without physically moving them, which in turn helped fund their business, achieve secure trade settlement, and effect value transfer across geographies.
When I examined other asset classes, I realized there are lessons that metals markets can learn from the securities market — from both successes and failures. Precious metals market infrastructure is antiquated and overdependent on physical movement to settle trades and transfer value. Settlement often requires shipment of physical metal — and global trading centers require different formats of gold in order to complete trades. The metals market lacks a central mechanism for sourcing supply, maintaining immutable ownership records, and mobilizing metal as collateral when needed most. The result is a more costly, less confident means of trading, settling, and deploying metal as collateral.
For example, gold has tremendous potential to work as an effective collateral asset. But due to its lack of price transparency, gold does not qualify as a high quality liquid asset (HQLA) — making it costly for certain institutions to own gold, and precluding other institutional investors from owning it. Better data, greater price transparency, and secure records of ownership help gold become a more acceptable investment and collateral asset.
The good news is there is a blueprint that has helped securities markets improve over the years, and there’s no reason we can’t apply this to gold markets in the immediate term.
What are the benefits for investors of having commodities digitized?
It’s actually fairly easy to digitize assets these days. The real value comes from combining digitization with legal constructs, data and certainty of ownership that gives counterparties comfort. By digitizing an asset, ensuring an immutable ownership record, and increasing price transparency, the market gains several benefits.
These benefits include:
- Increased certainty of settlement by removing the need for gold to be physically transported across borders, melted into different formats, and delivered to specific physical vaults. Indeed, in March of this year, as refiners and airlines curtailed operations due to COVID-19, settlement of certain contracts was far from certain.
- Reduced financing costs as gold becomes accepted as collateral. Banks, brokers, and asset managers can more easily borrow against their positions, just as they do in repo and securities financing markets on the securities side. In fact, in many cases gold is already permissible as collateral for certain derivatives trades. But since it has until now been operationally difficult to deploy, gold is underutilized in these trades. Digitization can change that.
- Greater opportunities for institutions to own gold. By increasing price transparency and settlement certainty, gold can become an eligible investment for the likes of insurance companies and European UCITS who today are not permitted to own gold.
- Lower cost, as gold trading and hedging centers become more interoperable globally. We’ve seen this across European securities markets, but this level of interoperability has, until now, completely bypassed gold markets.
- Transparent and regularly accessible gold trends and price data.
You are a big advocate of ethical gold, how does Tradewind Markets source its gold responsibly and how is blockchain used to monitor its supply chain?
While there’s strong demand for transparency within the metals supply chain, 63% of fund managers cite a “lack of quality and consistent sustainability data” as their biggest barrier to environmental, social, and corporate governance (ESG) investing. Tradewind has addressed this with ORIGINS, a supply chain traceability solution which helps companies adhere to the World Gold Council’s Responsible Gold Mining Principles by providing detailed supply chain information about the origin of its gold and silver. By providing provenance data, including the location of the mine, shipping dates, and a list of certifications or standards the source complies with, market participants can buy and sell precious metals from trusted sources and authenticate the provenance of material throughout the supply chain.
Currently gold and silver are offered, are there plans to offer palladium, platinum, or other commodities in the future?
Without question, there are several opportunities to digitize commodities beyond gold. We already offer silver in a digital form, and we actively assess other commodities markets.
Our approach has been to focus our time on solving the most pressing market infrastructure problems — and that means gold for now. Rather than wait to achieve complete industry consensus on when, how, and at what pace to solve the problem, we have started with a meaningful subset of market participants. The blueprint that has helped securities and derivatives markets improve over the past decade can be applied to gold — and the benefits need not take years to achieve.
You’ve spoken about how COVID-19 has showcased industry issues with the current legacy system. What are some of these issues and what are some of the solutions?
The pandemic certainly exposed major cracks in gold market infrastructure.
London is a large center for gold trading, while New York is a center for hedging those trades. Back in March, due to COVID-19 price dislocations, it became necessary for counterparties to settle their NY futures trades. However, the NY market requires gold in very specific formats, different from those that are typically traded in London or Shanghai. So, in order to settle trades, counterparties needed to refine gold bars, ship them to NY, and get them in the right vaults by the settlement deadline. As mentioned earlier, this process was made more difficult as airlines curtailed flights and refineries slowed operations throughout the pandemic.
The price of gold in NY surged over comparable gold in London, causing hedging losses given settlement uncertainty. Clearly, the time is now to rethink how gold in different trading centers can be deployed regardless of physical location, format and time zone.
Could you discuss the different precious metal options that are offered to investors?
Since the precious metals market is physically demanding, digital processes actually open up the number of options available to investors today. Previously, investors would have to purchase gold and store it in a safe location. Today, investors can buy gold digitally, fractionally, and leverage their metals to earn a yield.
Currently, the metals market is fragmented and lacks central records of ownership — which makes it difficult to borrow, lend, and deploy gold as collateral. Tradewind’s VaultChain™, our first digital gold and silver product, allows investors to purchase and own gold in a digital manner using digital records. This method of ownership eliminates the need for personal storage, security, insurance, transportation, and custody of gold and instead relies on an institution, in our case, the Royal Canadian Mint, for these processes.
VaultChain™ Gold also grants investors the option to purchase gold in fractional amounts smaller than one ounce, the standard unit for gold. Allowing for investors to purchase more exact increments of gold affords the precious metals market to function more like the securities market.
Some companies have created what are known as gold tokens: digital assets backed by physical gold that aim to anchor prices to the market value of gold.
Since each method is increasingly digital, investors have the ability to access supply chain data that they couldn’t previously access such as sourcing information, specific mines, geographical location, and which ESG governing models the mine adheres to. This information can be accessed through Tradewind’s ORIGINS, a supply chain traceability solution.
Can clients take physical delivery of gold, and are there geographic restrictions for this?
Tradewind clients can request physical delivery of gold through their authorized dealers, similar to how investors can request various forms of securities through brokers. Digital gold ownership also allows for investors to have the same benefits of investing in physical gold including physical acquisition of the metal. This is a feature that will likely appeal to counterparties who may need to demonstrate the ability to take possession of their assets physically.
Is there anything else that you would like to share about Tradewind Markets?
The precious metals market is ripe for change and we have an existing blueprint to guide us there. We don’t need to wait for consensus from the market when the right technology exists today. At Tradewind, we have bold — yet pragmatic and achievable — plans to give gold markets the infrastructure needed to make it more secure, resilient, and cost-efficient.
Thank you for the great, interview, readers who wish to learn more should visit Tradewind Markets.