This particular test saw Wall Street firms deliberate over a four-month period.
Editor’s note: The article has been updated for clarity.
A number of banks and financial firms have completed a long-running blockchain test involving a smart contract prototype developed by blockchain firm Axoni, for equity swaps.
Following months of testing, enterprise blockchain solutions firm Axoni has revealed a long-running blockchain test processing over-the-counter (OTC) equity swaps.
Participating banks include JP Morgan, Citi, Credit Suisse and Barclays. Financial support industry firms IHS Markit and Thomson Reuters, along with consultancy firm Capco also took part in the test.
Fortnightly meetings were conducted among participants during the four month testing period, which saw Axoni’s blockchain prototype installed by the firms on their premises or via a cloud environment.
Altogether, a diverse set of 133 test cases were assessed and scrutinized and Axoni has revealed a 10% success rate across all tests performed, an IBTimes report revealed.
Led my Axoni, the months-long test sought to automate lifecycle management and synchronization of single stock, index and portfolio swaps. The tests also included complex swaps that facilitated in tracking equity prices, tax implications and other parameters, ultimately seeking to prove that the smart contracts-led blockchain solution by Axoni was able to facilitate complex post-trade functions.
In statements, Axoni CEO Greg Schvey elaborated on the solution’s adaptability. He said:
Each party’s portfolio is different, so the markets that are made on these swaps are generally customized by dealers for the individual clients.
The smart contracts were generated from a combination of trades submitted by dealers on the blockchain network, as well as inputs based on simulated legal confirmations from Markit’s MarkitSERV processing platform. As a result, the much-vetted ‘golden record’ for each transaction was established in a synchronized manner across the distributed ledger. Traditionally, a golden record for an OTC trade was only possible with a trusted third party clearing house, or an authority like the DTCC.
Using a blockchain, you have a reliable record of who signed to the transactions and when each action was taken, so what you end up with is this distributed data store with a valid, provably gold version of the trade.
The chief executive also opined that regulators would favor blockchain technology for the transparency it brings, pointing to the aftermath of the 2008 financial crisis where regulation has leaned toward central counterparty clearing or CCPs. A comprehensive wider-view of the system of trades, for a regulator, would be significant, according to Schvey, who is quick to point out that the blockchain will maintain privacy among all parties other than those in a trade.
Revealing further insights about the testing, Schvey said that the prototype saw over a million active trade contracts inserted, with “hundreds of thosuands of new trades and updates” run in a minutes. He revealed:
We were actually able to query that data on a system-wide view in real time. We are talking about response times measured in milliseconds for complex analytics, in terms of the speed, accuracy and timeliness of data that you can provide for a regulator that might want to see things happening.
Furthermore, the group of participants also conducted over 50 tests of the underlying Axoni Core infrastructure, which has already seen applications in previous banking blockchain endeavors. Last mont, a number of banks, banking blockchain consortium R3 and Axoni conducted a blockchain test for managing reference data of traded products.
In April 2016, New York-based Axomi was among seven Wall Street firms to announce a successful blockchain solution for credit default swaps in post-trade processing.
Images from Shutterstock.
Last modified: January 25, 2020 11:53 PM UTC