The Depository Trust and Clearing Corporation (DTCC), the post-trade market infrastructure for the global financial services industry, has become the latest in line to adopt digital ledger technology (DLT).
DTCC announced on January 10 that it has selected IBM, in partnership with Axoni and R3, to provide a DLT framework for derivatives post-trade events. The firms will work together to re-platform DTCC’s Trade Information Warehouse (TIW), building a derivatives distributed ledger for post-trade processing based on existing TIW capabilities and interfaces.
A distributed ledger is a digital record of who-owns-what. However, unlike traditional database technology, there is no central administrator who owns the ledger. Instead, the ledger is replicated among many different nodes in a peer-to-peer network. A consensus algorithm ensures that each node’s copy of the ledger is identical to every other copy. Blockchain, a much talked-of technology used by bitcoin, is a type of data structure considered to be a distributed ledger.
Many banks have been trialling digital record technology. Last year, at November’s fintech festival in Singapore, the Monetary Authority of Singapore announced it would trial its own digital currency for interbank payments using blockchain technology. PwC also announced their Vulcan Platform, which will allow banks to experiment using digital currencies.
The Hong Kong Applied Science and Technology Research Institute (ASTRI), also in November 2016, released its White Paper commission by the Fintech Facilitation Office (FFO) of the Hong Kong Monetary Authority (HKMA) on the subject of DLT. The White Paper concluded that “DLT design clearly enjoys advantages over traditional technologies. However, such evolving technology also brings possible risks if issues of governance, deployment, risk management, and regulatory compliance, along with legal implications, are not adequately taken into account”. Hong Kong’s FFO was set up in March 2016, tasked with initiating banking and payment industry research into novel fintech solutions.
Bridget Van Kralingen, senior vice president, IBM Industry Platforms, said, "As one of the largest and most ground-breaking distributed ledger projects to date in the financial services industry, DTCC together with its member banks are reimagining the credit derivatives process”.
Amidst a climate of banks becoming less cautious of digitized currencies running on blockchain technology, DTCC’s new platform may encourage others to follow suit.
