Latest Articles

SWIFT, DTCC Blockchain Initiatives Indicate Increasing Financial Markets Acceptance

The recent news that SWIFT and DTCC, both established financial post-trade utilities, are taking tangible steps to explore blockchain technology points to increasing acceptance that blockchains and distributed ledger technology have a place – albeit a future one – as a core infrastructure component of the global financial markets.

Short for Society for Worldwide Interbank Financial Telecommunication, SWIFT provides global payments and securities messaging services to its bank owners and to other financial markets participants. As such, it no doubt sees blockchain technology as both an opportunity to revamp its offerings and a threat to its very existence. Interestingly, it has enabled much debate in both blockchain and cryptocurrencies through sessions it has run at its annual SIBOS conference, which has allowed it to demonstrate that it is in touch with marketplace trends, even when they might signal change that could be uncomfortable to implement.

In a position paper titled SWIFT on distributed ledger technologies, co-authored with consulting firm Accenture, the organization noted that it is indeed actively involved in making distributed ledger technology a real solution for its customers: “As a financial industry cooperative, SWIFT’s focus is on building technical, operational and business capabilities with a view to evolving our platform such that DLT-based services could be offered to our 11,000+ members, when the technology matures and firm business use cases emerge.”

Already, SWIFT is working on some proof-of-concept projects involving distributed ledgers, focused on:

- Identity and Access Management, integrating distributed ledger technology with a SWIFTNet PKI solution and access control mechanism.

- Standing Settlement Instructions, using distributed ledger to build a reference database for OTC marketplaces.

- ISO 20022, applying SWIFT standards expertise and the ISO 20022 data interchange standard to a distributed ledger, using a fixed-income security as an example.

As it proceeds with its early blockchain endeavors, SWIFT reckons it is well-placed to deliver: “SWIFT holds a unique set of assets and capabilities around strong governance, unrivalled standards expertise, operational efficiency, security, reliability and reach, which we will leverage to develop DLT services that meet the needs of our community.”

Meanwhile, DTCC – or the Depository Trust & Clearing Corporation – which handles post-trade clearing and settlement for U.S. securities, announced that it is working with startup Digital Asset Holdings on a blockchain proof-of-concept project focused on trade processing of U.S. Treasury, Agency and Agency Mortgage-Backed repurchase agreements, commonly referred to as repos.

The repo marketplace is a good one for DTCC to explore, since it already offers trade matching services in the space, but is not involved in the later clearing and settlement processes. Thus, DTCC can create a new real-time service that would potentially offer netting and offset functions that would lead to lower risk, and require less capital, for market participants.

DTCC’s repo trial and others it is conducting represent early blockchain steps, with more likely to come. In a letter to shareholders, CEO Michael Bodson wrote in relation to blockchain’s emergence: "We intend to be at the forefront of this issue by helping to spearhead industry experiments and use cases, serving as a leader in the governance of open source, fostering collaboration among market participants and by making strategic investments in partners that can help advance the technology."

Having entities like SWIFT and DTCC exploring blockchain is significant and could help to unify the financial markets as a whole around common blockchain standards  and approaches, and perhaps even head off the establishment of third party initiatives or fully peer-to-peer models that would undermine the very role played by these organizations.

That said, both SWIFT and DTCC are cautioning that current distributed ledger technology is not yet fit for prime time use, so there is plenty going on in the financial markets as individual banks seek to get ahead by trialing blockchain approaches, consortia work on their technology and business models, and startups look to re-invent long-established processes and disrupt incumbent players. Some recent notable developments include:

R3 CEV – The leader of a consortia of 40+ banks announced the group is developing its own distributed ledger, dubbed Corda, which is specifically designed to “manage financial agreements between regulated financial institutions,” according to a blog post from R3’s CTO Richard Brown.

Crucial to its design is that unlike traditional blockchains, data in Corda is not copied to all participants connected to the ledger, but only those concerned with specific financial agreements (including compliance and regulatory functions), which validate them. Indeed, notes Brown, while R3’s distributed ledger – which it previously referred to as a “Global Fabric for Finance” – provides for immutability of transactions, support for different consensus models, and a workflow that is decentralized, the group is “not building a blockchain.”

While Corda is still under development, there is a plan to open source its code – possibly to the Linux Foundation-led Hyperledger Project in which R3 participates – when it is more mature. That said, an early version was previewed publicly recently by consortia member Barclays underpinning a demonstration of a smart contract approach.

Symbiont – Startup Symbiont, which last year showcased an early securities issuance application running on the Bitcoin blockchain, is developing a proprietary permissioned distributed ledger, using a Practical Byzantine Fault Tolerance consensus mechanism and supporting smart contracts written in Python.

The company will be using its proprietary technology to underpin a joint venture with financial services technology provider Ipreo, which plans to revamp the global syndicated loans market, where settlement periods of 20 days or more are holding back growth. By combining Ipreo’s loan settlement platform and Symbiont’s smart contracts, the settlement process can be automated and shortened, with tens of millions of dollars in potential annual savings.

As well as Ipreo, Symbiont also announced a collaboration with the State of Delaware to create the Delaware Blockchain Initiative, which will use its smart contracts to provide services to businesses incorporated in the state, a popular jurisdiction for new company formations.

Domus Tower – Emerging from stealth, this San Francisco-based startup outlined plans to build a private blockchain-based platform for real-time settlement of publicly traded U.S. securities. Domus’s own development has been tested to support a million transactions per second, and potentially ten times that performance.

Notably, the Domus business model calls for its blockchain to be integrated with existing markets infrastructure and participants, replacing the function of the National Securities Clearing Corporation (NSCC) with its blockchain-based service.

In order to prototype its service and take it to market, Domus is looking to form a consortium of participants that it feels are required to cover all of the functional bases, comprising an accounting firm, a broker/dealer, a custodian, an investment manager and a stock exchange.

Markit – An established global vendor of financial market data and trading services, Markit recently took part in a multi-month blockchain and smart contracts test related to the post-trade processing of credit default swaps (CDS). Others participating included Bank of America Merrill Lynch, Citi, Credit Suisse and JPMorgan Chase, as well as the DTCC and technology provider Axoni.  Axoni’s technology was also used in a recent trial by interdealer/broker ICAP.

In the test, Markit generated smart contracts from CDS trade confirmations sourced from its MarkitSERV service, creating a synchronized, distributed golden record on the network.  Embedded in the smart contracts were economic terms, as well as computational logic to manage permissions and event processing. The test also demonstrated how regulators could tap into information in real time to monitor counterparty and systemic risk.

SETL – The U.K.-based financial blockchain startup announced that it is working with Australia’s Computershare on a project to create a tamper-proof data store of securities ownership in that country.

As part of the project, Computershare – which provides share registration services globally – will recruit issuers, asset owners, brokers, regulators and market infrastructure providers while SETL will provide its blockchain technology.

“Computershare is uniquely placed to appreciate how blockchain technology will be specifically applied in maintaining ownership registers. We are already the keeper of definitive legal ownership – the ‘Golden Record’ – for our issuer clients and their stakeholders,” said Paul Conn, President of Global Capital Markets for Computershare.

State Farm Is Testing a Blockchain-Based Subrogation Manager

State Farm announced on December 10 that it is experimenting with a blockchain-based solution for managing the subrogation process in the insurance industry, making the company the latest major enterprise to explore blockchain technology.

LinkedIn Finds Blockchain Developer to Be 2018’s Most Rapidly Growing Job

Distributed Summary:

  • In 2018 U.S. Emerging Jobs Report, LinkedIn says blockchain developer hiring grew by 33x
  • Top skills required for the position include Solidity, Node.js, Ethereum and cryptocurrency
  • IBM, ConsenSys and Chainyard are top hirers for the position and SF, NY and ATL the top locations

U.S. Congressman Suggests “Do Blockchain” and “Wall Coins” to Fund Border Wall

Distributed Summary:

  • Ohio State Representative Warren Davidson throws out blockchain-based fundraising to construct wall between U.S. and Mexico border
  • Floats the cryptocurrency name “wall coin” in seemingly offhand remark
  • Demonstrates awareness, if not sophisticated understanding, of blockchain-based fundraising and incentivization

BlockFi, a Cryptocurrency Lending Firm With Credit Card Plans, Receives Funding From Fidelity and Mike Novogratz

Financial services behemoth Fidelity Investments and perennial crypto booster Mike Novogratz have provided funding for BlockFi, a cryptocurrency lending startup.