Custodian Bank Completes Blockchain Test to Streamline Securities Lending

December 22, 2016

State Street Corp., a global financial holding company, has completed a 7-month blockchain test to streamline the securities lending process which it is considering deploying in 2017, Hu Liang, senior managing director of the Emerging Technologies Center at State Street, told Reuters.

State Street is among several financial institutions to test blockchain technology and to consider deploying it in the near term.

Blockchain Improves Lending

The blockchain system State Street has tested would transform the collateral posted by an investor to borrow securities from State Street’s clients into digital tokens to be used for other transactions.

The tokens would create a digital, immutable record of how collateral is used and would make it easier for State Street to return collateral to the borrower’s account once their lending position unwinds.

The aim is to improve the operational aspect of securities lending, according to Liang. Oftentimes, there is no automated linkage to indicate what account the collateral should return to. The system would lessen the amount of manual intervention in the process and provide a better record for regulatory reporting.

Also read: Wall Street firms complete successful blockchain test

Big Players Embrace Blockchain

State Street is one of the largest providers of financial services to institutional investors, offering investment servicing, investment management and investment research and trading. With $29 trillion in assets under custody and administration and $2 trillion in assets under management, the company operates in more than 100 geographic markets worldwide, including the US, Canada, Europe, the Middle East and Asia.

The test is one of several blockchain initiatives that financial institutions have conducted in the past year.

Euroclear, a Brussels-based post trader, announced it completed a blockchain pilot for a London bullion settlement service that is expected to go live in 2017.

Image from Shutterstock.

Lester Coleman

Lester Coleman is a media relations consultant for the payments and automated retailing industries.