DTCC has thrown its weight behind distributed ledger technology as a means of modernising post-trade processes and says it is in the best position to coordinate evaluation and standardisation of the distributed ledger platform, address challenges and decide whether it is a better solution than existing technology.
The company sets out its views on distributed ledger – or blockchain – technology, and calls for industry collaboration to modernise, streamline and simplify the siloed design of financial infrastructure and address limitations in post-trade processes in a paper entitled ‘Embracing Disruption – Tapping the Potential of Distributed Ledgers to Improve the Post-Trade Landscape’.
Michael Bodson, president and CEO at DTCC, says: “The industry has a once-in-a-generation opportunity to reimagine and modernise its infrastructure to resolve long-standing operational challenges. To realise the potential of distributed ledger technology in a responsible manner and to avoid a disconnected maze of siloed solutions, the industry must work together in a coordinated fashion. As an industry-owned and governed financial market utility with more than 40 years of service, DTCC is uniquely positioned to help lead the effort in exploring how distributed ledger technology can simplify or replace legacy post-trade systems.”
DTCC suggests processes that should be explored using distributed ledger technology include: master data management; asset and securities issuance and servicing; confirmed asset trades; trade and contract validation, recording and matching for complex asset types; netting and clearing; collateral management; and settlement.
Despite its apparent enthusiasm, DTCC acknowledges that the technology is still immature and unproven, has scale limitations and lacks underlying infrastructure to integrate into the existing financial markets environment. And it warns: “The industry hype and research into this new platform has been unprecedented, but also generally uncoordinated up to this point. As a result, the industry is at risk of repeating the past and creating countless new siloed solutions based on different standards and with significant reconciliation challenges.”
Demonstrating its commitment to progressing blockchain technology, DTCC has invested in Digital Asset Holdings, a developer of blockchain technology for the financial services industry, and joined the Linux Foundation to support the Hyperledger project, a collaborative effort to develop open source blockchain technology.