Monday, November 12, 2018

Global Banks in Test of US$11 Trillion Shared Ledger at DTCC

Regulators and Credit Derivatives industry prep for 2019 Go-live

Author: Ed Blount

Announced on November 6, 2018, the addition of Barclays brings to 15 the number of dealers in the main blockchain project of The Depository Trust & Clearing Corporation (DTCC). By recoding the DTCC’s Trade Information Warehouse (TIW) for bilateral credit derivatives in only 18 months, the securities depository and its team of IT consultants – IBM, Axoni and R3 – hope to show that distributed ledger technology and cloud platforms are feasible options for high volume transaction processing and recordkeeping systems -- initially for those services with similar data architectures on a permissioned platform.

“The standardized nature of the process flows and data models made credit derivatives an ideal test case for distributed ledger technology, “ stated DTCC in its press release. “Bolstered by common data standards and governance, a DLT-based TIW service will enable the industry to process and report to regulators from the same data record.”

The Axcore blockchain platform of Axoni, a start-up backed by Goldman Sachs, JPMorgan Chase, among others, is itself an adaptation of the Ethereum cryptocurrency blockchain. In an interview, Greg Schvey, Axoni’s president and co-founder, said that, “These are very strategic investors. We have deep strategic and commercial engagements with most of them.” Schvey formerly was the president of Visa International.

When the invitation-only test is completed in 60 days, DTCC expects to invite other market participants and service providers to a second user acceptance testing phase in 1Q2019, with cutover shortly thereafter. In addition to Barclays, the initial test is said to include Citigroup, Credit Suisse, Deutsche Bank, J.P. Morgan, UBS and Wells Fargo, as well as IHS Markit and the Intercontinental Exchange (ICE).

“The transformation of DTCC’s Trade Information Warehouse using distributed ledger and cloud technology, along with the modernization of MarkitSERV’s confirmation system, is truly a ground-breaking effort pushing the boundaries of technology use in the industry,” stated Chris Childs, CEO of DTCC DerivSERV. “We are proud to be collaborating with a number of the world’s leading banks, MarkitSERV and all our partners on this exciting initiative to revolutionize the derivative industry’s credit market infrastructure. We look forward to launching the service next year.”

DTCC’s TIW platform tracks the security throughout its lifecycle, to include payments and settlements. By using blockchain, DTCC plans to simplify the process by cryptographically exposing the ledger to each authorized participant. However, unlike DTCC’s legacy services, trades are not netted prior to settlement. Smart contracts serve that function.

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