The Depository Trust & Clearing Corporation (DTCC) has selected IBM, in partnership with Axoni and R3, to provide a distributed ledger technology (DLT) framework for derivatives post-trade lifecycle events.
The firms will work collaboratively to re-platform DTCC’s Trade Information Warehouse (TIW), building a derivatives distributed ledger solution for post-trade processing based on existing TIW capabilities and interfaces with technology providers and market participants.
The TIW service currently automates the record keeping, lifecycle events, and payment management for more than $11 trillion of cleared and bilateral credit derivatives.
DTCC says that the DLT solution will allow the firms to further streamline, automate and reduce the cost of derivatives processing across the industry by eliminating the need for disjointed, redundant processing capabilities and the associated reconciliation costs.
The solution has been developed with input and guidance from a number of market participants including Barclays, Citi, Credit Suisse, Deutsche Bank, J.P. Morgan, UBS and Wells Fargo, and key market infrastructure providers, IHS Markit and Intercontinental Exchange.
It will be deployed through a number of phases, with an end-state vision to establish a permissioned distributed ledger network for derivatives, governed by industry-owned DTCC, with peer nodes at participating firms.
Under the agreement, IBM will lead the initiative, provide program management, DLT expertise and integration services, and offer the solution-as-a-service. Axoni will provide distributed ledger infrastructure and smart contract applications, with R3 acting as a solution advisor.
Development is expected to begin this month and build on Axoni’s AxCore distributed ledger protocol, which will be submitted to Hyperledger when the solution goes live, anticipated in early 2018. Hyperledger is an open source collaboration project hosted by the Linux Foundation.
The firms involved in the project are claiming that this is a very significant move, with Bridget Van Kralingen, senior vice president at IBM Industry Platforms, stating that this is “one of the largest and most groundbreaking distributed ledger projects to date in the financial services industry” and Greg Schvey, CEO of Axoni, describing it as “a watershed moment for the industry”.
David Rutter, CEO of R3, says that DLT is “a natural fit” for derivatives processing, adding: “By recording and automatically managing shared records of financial agreements in the cloud without error, it can minimise the steps required for post-trade processing and free up middle and back office staff from the onerous task of reconciliation.”
Meanwhile, Chris Childs, CEO of DTCC Deriv/Serv, comments: “IBM, Axoni and R3 offer valued DLT expertise, as well as a strong commitment to the Hyperledger community and industry standards. We are pleased that they have chosen to leverage their collective expertise and collaborate with us on this initiative, which will allow us to build the best solution for the marketplace while minimising cost to the industry and expediting our speed to market.”