Tuesday, 28 March 2017
Last updated 17 hours ago
Jan 9 2017 | 5:54pm ET
The Depository Trust & Clearing Corporation, better known as DTCC, has selected IBM, in partnership with Axoni and R3, to provide a distributed ledger technology framework (DLT) to drive improvements in post-trade derivatives settlement.
The firms will work collaboratively to re-platform DTCC’s Trade Information Warehouse, working collaboratively to build a derivatives distributed ledger solution for post-trade processing based on existing TIW capabilities and interfaces with technology providers and market participants. The TIW service currently automates the record keeping, lifecycle events, and payment management for more than $11 trillion of cleared and bilateral credit derivatives.
Under the agreement, IBM will lead the initiative, provide program management, DLT expertise, and integration services, and offer the solution-as-a-service. Axoni, formed by the founders of institutional digital currency trading platform Tradeblock, will provide distributed ledger infrastructure and smart contract applications, with financial industry blockchain consortium R3 acting as a solution advisor.
The new solution will enable DTCC and its clients to further streamline, automate and reduce the cost of derivatives processing across the industry by eliminating the need for disjointed, redundant processing capabilities and the associated reconciliation costs, the statement said. It has been developed with input and guidance from a number of market participants including Barclays, Citi, Credit Suisse, Deutsche Bank, J.P. Morgan, UBS and Wells Fargo, IHS Markit and Intercontinental Exchange.
The solution will be deployed through a number of phases, DTCC said, with the eventual goal of establishing a permissioned distributed ledger network for derivatives, governed by industry-owned DTCC and anchored on peer nodes at participating firms.
Development is expected to begin in January 2017 and build on Axoni’s AxCore distributed ledger protocol. It is expected to go live by early 2018 and will be released to open-source collaboration project Hyperledger at that point.
“IBM, Axoni and R3 offer valued DLT expertise as well as a strong commitment to the Hyperledger community and industry standards,” said Chris Childs, CEO of DTCC Deriv/SERV, in the statement. “We are pleased that they have chosen to leverage their collective expertise and collaborate with us on this initiative, which will allow us to build the best solution for the marketplace while minimizing cost to the industry and expediting our speed to market.”
"As one of the largest and most groundbreaking distributed ledger projects to date in the financial services industry, DTCC together with its member banks are reimagining the credit derivatives process,” added Bridget Van Kralingen, SVP, IBM Industry Platforms. “The combined expertise of IBM and our partners enables us to provide DTCC with a resilient, open and innovative new technology platform to support this groundbreaking opportunity."
“Deploying distributed ledger technology in production at this scale is a watershed moment for the industry,” said Greg Schvey, CEO of Axoni. “The combination of technology and business expertise being contributed to this project from across the participating firms is unparalleled and the benefits are clear. We look forward to working with DTCC and the project partners to bring those benefits to the market.”
“We’re very excited to be working with this team, as DTCC seeks to enhance its derivatives processing technology,” stated David Rutter, CEO of R3. “Distributed ledger technology is a natural fit for derivatives processing. By recording and automatically managing shared records of financial agreements in the cloud without error, it can minimize the steps required for post-trade processing and free up middle and back office staff from the onerous task of reconciliation.”
The announcement follows a successful proof-of-concept test for North American single name credit default swaps last year with DTCC, Axoni, IHS Markit and several market participants. The test demonstrated that complex post-trade events inherent to CDS can be managed efficiently with distributed ledger technology in a permissioned, distributed, peer-to-peer network.
Founded in 1973 as Depository Trust Company, DTCC has operated since 1999 as a holding company combining DTC and National Securities Clearing Corporation. The firm has operating facilities, data centers and offices in 16 countries. Through its subsidiaries, DTCC automates, centralizes, and standardizes the post-trade processing of financial transactions. In 2015, DTCC’s subsidiaries processed securities transactions valued at more than $1.5 quadrillion.