Distributed ledger technology could remove operational frictions – says DTCC

Thursday 28 January 2016 00:23 CET | News

Despite its proven track record of providing stability, reliability, today’s financial market infrastructures have certain limitations that distributed ledger technology could address, a recent report shows.

According to the report “Embracing Disruption – Tapping the Potential of Distributed Ledgers to Improve the Post-Trade Landscape,” by The Depository Trust & Clearing Corporation (DTCC), distributed ledgers hold the potential to streamline and simplify today’s siloed design and improve processes in certain areas where automation is limited or non-existent and where the technology provides a clear benefit over the existing approach, by addressing the following:

• the layers of financial market systems are siloed and contain multiple versions of truth. There is minimal transparency into each system, and every bank maintains large, costly libraries of application code existing only to reconcile different versions of the truth.
• the legacy systems currently employed were not architected to protect against today’s technological threats, including the potential for cyberattacks. As a result, the potential for data compromises due to system vulnerabilities exists.
• today’s systems are very complex due to their evolution over the course of decades. Trading activities, along with clearing, settlement and collateral/capital/asset management systems, were built at different times and intended to serve different needs. Today, there are minimal widely used standards, systems are not well integrated and many manual processing steps still exist.
• today’s systems were mostly architected prior to the globalization of the industry and the resulting need is for markets to operate 24 hours a day, 7 days a week, 365 days a year.

Also, DTCC believes that a secure distributed ledger, with complete, traceable, transaction history for a set of assets that is shared and accessible only between trusted parties, could provide a significant improvement in certain areas of today’s infrastructure. It could support solutions to address current business challenges by ensuring that:

• every trusted member has a copy of the same history of all transactions in an asset.
• all data is encrypted in a common manner according to modern standards and can only be decrypted and inspected by the owner of the required keys to the data.
• the shared ledger, used by every trusted party involved in trading a particular asset, establishes a network and data standard that can be integrated with tools, workflows and asset management systems in a simplified, consistent manner.
• the transaction distribution model defines a paradigm for always-on, active: active processing, which is more resilient to local database corruption than existing hardware replication models.

Based on its research and analysis, DTCC recommends exploring distributed ledger initiatives in: master data management; asset/securities issuance and servicing; confirmed asset trades; trade/contract validation, recording and matching for the more complex asset types that currently do not have strong existent solutions; netting and clearing; collateral management; and, longer term, settlement.

What`s more, as part of its commitment to progressing distributed ledger technology in the post-trade space, DTCC made a financial investment in Digital Asset Holdings, a developer of distributed ledger technology for the financial services industry.

DTCC has also joined the Linux Foundation, a nonprofit organization enabling mass innovation through open source, to support a new venture known as the Hyperledger project, a collaborative effort to advance the Blockchain technology. This relationship will enable DTCC to play a role in creating the governance and standards for the technology and ensure it is open source and based on collaboration.

DTCC is an US-based post-trade financial services company that automates, centralizes, and standardizes the post-trade processing of financial transactions, mitigating risk, increasing transparency and driving efficiency for thousands of broker/dealers, custodian banks and asset managers worldwide. User owned and industry governed, the company simplifies the complexities of clearing, settlement, asset servicing, data management and information services across asset classes.

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Keywords: DTCC, distributed ledger, blockchain, report, workflow, asset management, settlement, data management, operational friction
Categories: Banking & Fintech | E-invoicing, SCF & E-procurement
Countries: World
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Banking & Fintech