January 9, 2017 | Written by: Keith Bear
Categorized: Blockchain | Cloud | Financial Markets | Newsletter
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This week’s announcement that DTCC has selected IBM, in partnership with Axoni, to build a Distributed Ledger Technology (DLT) version of their Trade Information Warehouse (TIW) is a flagship event in the increasing role of blockchain technology in financial markets. It sets an industry standard for successful “at scale” industry deployments of DLT within the Markets.
Industry Collaboration: It’s notable that from the original Proof of Concept of TIW earlier in 2016, DTCC succeeded in bringing together the world’s largest participants in the Credit Default Swap market to collaborate on both the nature and the selection of the necessary technology and services components. Indeed, the list of participating institutions: Barclays, Citi, Credit Suisse, Deutsche Bank, JP Morgan, UBS and Wells Fargo together with key market infrastructure providers, IHS Markit and Intercontinental Exchange represents a remarkable amalgam of industry leaders committing time and resources to the efficiencies and cost reductions DLT brings to the CDS market.
Blockchain maturity: Much has been said of the relative maturity of blockchain technology, the position on the hype cycle, etc. However, this announcement makes it clear that the core technology is sufficiently mature for DTCC and the industry to commit to a major implementation for a mission critical part of the global financial markets infrastructure. This is further underlined by the commitment that DTCC, IBM and Axoni are making to the Hyperledger Project, as the key means by which all parties will benefit from an open-source, open-governance approach to the underlying DLT fabric.
The role of Fintechs and innovation: Many DLT initiatives within financial markets are led by market infrastructure providers launching initiatives to deploy DLT solutions in close collaboration with the key market participants. Sometimes these have been in-house developments, and other times with Fintech partners. The role of Axoni in the DTCC project is a powerful example of the latter, where Axoni’s innovation and appreciation of the industry complexity from its multiple PoCs makes for a vital contribution to the solution selected by DTCC.
The need for “heavy lifting” Build, Integrate and Operation experience: DTCC has taken a highly pragmatic approach to the Build/Operate aspects for the TIW replacement. From the outset, DTCC required that selected vendors have the necessary depth and breadth in the practical design, complex implementation and operation of DLT solutions to reduce the implementation and operational risks in a project of this scale. With this in mind, the combination of IBM and Axoni has made for a compelling solution to DTCC’s requirements.
Downstream Transformational Benefits: Through the consensus achieved by DTCC and the industry in determining the selection of the IBM/Axoni partnership for the TIW implementation, the major banks involved also will gain the opportunity to determine how the DTCC’s DLT approach for credit derivatives post-trade life-cycle event management may bring additional benefits for their own, in-house approaches to credit derivatives post-trade processes such as the opportunity to reduce cost and internal reconciliations within individual banks.
DTCC’s announcement is a bold statement on the role and expectations that blockchain technology is expected to deliver in the Financial Markets industry. The approach taken represents a compelling blueprint for other Financial Markets Infrastructure providers to follow as they proceed with their own journeys for blockchain adoption within their respective businesses.