Wall Street’s Settling House Points Industry toward the Bitcoin Blockchain

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The Depository Trust & Clearing Corporation (DTCC), the post-trade clearing and settlement service that powers every single trade in the $22 trillion U.S. stock market has called for an industry-wide collaboration to adopt blockchain technology.

A new white paper issued by the DTCC has called for a coordinated effort among the financial industry to realize a “once-in-a-generation opportunity” to modernize and empower its infrastructure with blockchain innovation, the technology that powers the cryptocurrency Bitcoin.

The paper, titled “Embracing Disruption – Tapping the Potential of Distributed Ledgers to Improve the Post-Trade Landscape” can be downloaded here. [PDF]

The white paper notes that while today’s systems used by financial markets have a proven track record of providing stability, reliability and certainty, they aren’t equipped for round-the-year processing and are ‘quite complex and siloed’.

In a statement via a press release, president and CEO of DTCC, Michael Bodson said:

The industry has a once-in-a-generation opportunity to reimagine and modernize its infrastructure to resolve long-standing operational challenges.

To realize the potential of distributed ledger technology in a responsible manner and to avoid a disconnected maze of siloed solutions, the industry must work together in a coordinated fashion.

Citing research and analysis, the white paper recommends global financial markets to explore distributed ledger technology in specific fields such as:

  • Settlement
  • Collateral management
  • Nettling and clearing
  • Confirmed asset trades
  • Trade/contract validation
  • Asset/securities issuance and servicing
  • Master data management

The above are highlighted as targeted areas where distributed ledger technology offers clear benefits over existing infrastructure platforms and processes.

While talking up blockchain technology, the paper also brings caution to a nascent technology that it points out as ‘still immature and unproven.’ The paper also cites the scaling concerns currently being debated by the bitcoin- and blockchain-space and also cites the lack of an ‘underlying infrastructure to cleanly integrate the technology’ into existing financial markets.

Furthermore, the DTCC white paper calls for currently functioning, ‘regulated and trusted central authorities’ to help in providng the technology and governance required to support new distributed ledger innovations that it deems necessary implementations.

Trading Platforms Investing in Blockchain tech

DTCC was one among several recent investors in the Blythe Masters-led blockchain startup Digital Asset Holdings (DAH), where Bodson will also sit on the company’s Board of Directors. New York-based DAH is one of the more notable, high-profile developers of digital ledger technology geared toward the financial services industry.

Bodson’s statement about a “once-in-a-generation” opportunity echoes that made by Australian Securities Exchange (ASX) managing director Elmer Funke Kupper, who noted blockchain technology as a “once in a 20-year opportunity” for the ASX to replace its existing clearing and settlement system with one powered by blockchain technology.

Australia’s biggest stock exchange, the ASX was the first major financial market to announce an upcoming integration and the testing of blockchain technology this year. The ASX is also looking at the innovation for post-trade trade systems, much like DTCC. Additionally, the ASX is also a co-investor in DAH, along with DTCC and can also see the Australian exchange leverage its investment in Digital Asset to appoint a director to the company’s board.

The latest endorsement of blockchain technology is a significant one, coming from a major player in finance and world industry following similar recent efforts from the International Monetary Fund (IMF) and PricewatercooperHouse.

Image from Shutterstock.

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