LONDON, May 19 (IFR) - The Depository Trust & Clearing Corporation plans to go live in the first quarter of 2018 with its blockchain-driven platform for credit default swaps reporting.
The digital ledger platform will initially launch in shadow mode, operating alongside existing infrastructure.
In conjunction with fintech partners Axoni, IBM and industry consortium R3, the post-trade infrastructure provider began work in January to rebuild its Trade Information Warehouse, which handles reporting on US$11trn of CDS notional, with a permissioned ledger.
The initial launch comprises an internal replacement of DTCC’s mainframe processing system but the multi-step process aims to deliver widespread simplification of transaction reporting across the swaps market, potentially changing the role of trade repository operators altogether.
“The real competence of DTCC is around governance and risk management for the members that own us," said Robert Palatnick, chief technology architect at DTCC. "Instead of managing a data warehouse of golden copy data, we are going to be the network operator, providing the governance and risk management for those new networks.”
For industry-owned DTCC, a shift in business model is the latest in a series of disruptions that include a move from paper certificates to digital settlements and a collapse in settlement volumes as a result of netting.
“We have disrupted ourselves multiple times,” said Palatnick. “We’re industry owned, so the goal and intent is to work with the industry to develop new technologies that can solve operational challenges while reducing costs and risks.”
While the first phase will see participants face the DTCC directly through the organisation’s own connection point or “node”, a second phase would see the DTCC provide nodes on the permissioned ledger to participant firms, enabling them to validate reported data and directly access information.
A final phase would see firms taking down their own nodes, enabling participants to benefit from efficiencies by replacing some of their own internal capabilities with the new technology.
With a plethora of blockchain projects underway across the financial services industry, DTCC’s CDS reporting venture is seen as a crucial test for technology that currently lacks standards, best practices and interoperability models.
“We are leveraging a new technology and applying it to the existing business model,” said Palatnick. “The intended outcome of this initiative is clearly defined because we already have an established business with a network of firms submitting trades.”
While CDS was an obvious place to start given the standardisation of contracts, DTCC plans to extend the technology across all asset classes in the future. That requires greater collaboration between the industry and regulators to drive standardisation, according to Chris Childs, CEO of DTCC’s Deriv/SERV.
“All of the technology issues are solvable, but I’m interested in the level of collaboration required in the industry and the governance process that may be needed if the industry is really going to benefit from this technology,” said Childs, speaking at ISDA's annual general meeting in Lisbon. “If we don’t have that approach, we may end up with another level of fragmentation using new technology.”
Those hopes were supported by the CFTC's launch of LabCFTC last week. The initiative is aimed at promoting responsible fintech innovation through improved regulatory certainty and identification of emerging technologies that can assist the regulator in its operations.
"We'd like to treat fintech the same way the government treated the internet and firstly do no harm," said Michael Gill, chief of staff at the CFTC, speaking at the Lisbon event. "As we go forward and the government makes more regulations, we want to have these technologies in mind so we don't set something up that in the future will be an inhibitor to a shared ledger." (Reporting by Helen Bartholomew)