DTCC Moves Closer to Blockchain-Powered Trades


The world's largest financial clearing and settlement provider said that its blockchain-based financial processing infrastructure is now complete and ready for real-world testing. That's according to an announcement on November 6 from the Depository Trust & Clearing Corporation (DTCC), which reported that a new, blockchain-powered version of its Trade Information Warehouse (TIW) platform has entered testing.

The DTCC has already made more than a few headlines in the blockchain world. By 2016, it was exploring blockchain-based solutions for financial trade processing. It announced in early 2017 that it was working with IBM, Axoni and R3 to begin building a distributed ledger framework for post-trade derivatives processing, and later that year, it reported that it was on track to roll out a blockchain-based platform for tracking credit default swaps by early 2018.

It's unclear whether the latter platform ever actually appeared or if the initiative was rolled into the larger project of retooling the DTCC's TIW platform using distributed ledger technology. Either way, what is clear based on the DTCC's latest blockchain-related announcement is that TIW is now undergoing "end-to-end, structured user acceptance tests."

The DTCC expects to complete these tests by the end of Q1 2019 and to then take the platform live.

Fifteen of the "world's largest global banks" are participating in the testing, according to the DTCC's statement. The DTCC has not publicly identified those banks, but Barclays is one of them. Lee Braine, who works at the CTO office at Barclays, said in a statement that his company is excited "to bring distributed ledger technology to life in a demonstrable way that will enhance efficiencies and lower costs and risks for the industry."

(In an earlier announcement regarding its blockchain initiative, the DTCC identified Barclays, Citi, Credit Suisse, Deutsche Bank, J.P. Morgan, UBS and Wells Fargo as banks that were providing input on the project. It's unclear, however, whether all of these banks are also participating in the platform testing announced this month.)

Real-World, Blockchain-Based Finance Systems

Placing a blockchain-powered financial processing platform into private testing is not exactly groundbreaking news. What will be most interesting is to see such a platform actually deployed into the wild for general-purpose use.

Still, given the disparity between the number of grandiose plans for applying decentralized technology to the finance industry and the number of ideas that have been or are in the process of being implemented, the DTCC's recent announcement is a big deal. It's proof that at least some of the predictions about how blockchains will radically change finance are on the path to becoming true.

Also notable is the fact that the DTCC is no marginal or small-time player in the finance industry. The New York-based company handles the majority of securities transactions in the United States, as well as a good chunk of those that take place worldwide. Its TIW platform processes $11 trillion worth of derivatives annually. Thus, the DTCC's embrace of blockchain technology as a way to improve financial trading represents a major example of an established, very influential financial company taking decentralization seriously - not just another fintech startup working to disrupt industry giants via a distributed ledger.

The DTCC has been mostly tight-lipped about how, exactly, distributed ledger technology factors into the new version of the TIW platform that it is now testing. However, given that the platform serves in part to store and manage contracts for financial securities trades, it seems a safe bet that the company's goal is to store those contracts on a distributed ledger, where information will be more reliable and more accessible to stakeholders. We presume that the platform is using a permissioned blockchain deployed by Axoni, which was set to "provide distributed ledger infrastructure and smart contract applications," according to an early 2017 statement from the DTCC.

Interestingly, R3's role in the effort is to serve only as a "solution advisor," according to the same statement, even though R3 also offers blockchain infrastructure and, in that sense, competes with Axoni. The DTCC has managed to partner with both blockchain providers, though it apparently chose Axoni to build the actual infrastructure for its new TIW solution.

The bottom line: given the DTCC's stature within the finance industry, its blockchain-powered TIW platform could be a very big deal. We'll keep our eyes peeled in 2019 for signs that the solution is moving beyond testing and into the real world.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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