DTCC actively responds to blockchain technology challenges and is not afraid of changes in business models

The Depository Trust & Clearing Corporation (DTCC) is the main clearing company for securities and derivatives in the United States, processing more than $1.6 trillion in securities transactions each year. Therefore, for DTCC to maintain its leading position in the securities market and continue to seize market share, it must cater to market demand. This is why DTCC decided to join the army of exploring blockchain technology, and in the past few months, DTCC has been immersed in studying blockchain technology.

Facing the challenges of blockchain technology, DTCC adopts an open and inclusive attitude and does its best to help the industry understand the technology and define the future architecture of the industry, even if it means changing DTCC's business model. Robert Palatnick, DTCC's chief technology architect, said:

“It’s part of our responsibility to help the industry innovate by looking at how distributed ledger technology can be used to solve some of the problems that the industry has. If that means we have to change our business model a bit to accommodate that, then that becomes the way it should be for the industry as a whole.

In addition to the usual monthly fees and handling fees, DTCC also charges users a fee to open an account. According to its most recent annual report, DTCC processes more than $1 trillion in securities each year, and the average handling fee of one cent can add up to as much as $1.4 trillion.

In theory, blockchain could change this high-fee situation by allowing DTCC clients to handle securities post-trade resolution on their own.

Popularization of blockchain knowledge

To better understand blockchain technology, DTCC joined the Hyperledger project led by the non-profit Linux Foundation in December 2015, and its systems director Pardha Vishnumolakala is now a member of the project’s technical steering committee.

Although still in its early stages, the Hyperledger project aims to provide open-source financial solutions through the use of blockchain technology.

Palatnik said these are just the first steps DTCC is taking in the blockchain space and are the beginning of its exploration of blockchain technology.

A month later, the DTCC joined the largest investment round to date in a non-bitcoin blockchain company and published a white paper in which it wrote that “failure to collaborate” on blockchain application research would cause the industry to repeat the mistakes it often made in the past when experimenting with a new technology, constantly building new “island-style” solutions based on different standards.

Palatnik said the DTCC is acting as a coordinator to ensure that these "islands" do not emerge in the new financial model of blockchain. He said that at least every other day they receive calls from different vendors who are building pilot trials using different blockchains to streamline mortgage lending, syndicated loans, equity settlements, etc.

Some of these organizations are contacting us because they feel we can help them, whether it’s supporting their use case or helping them understand how to mitigate the risk to an appropriate level in implementing a particular use case from a corresponding industry risk perspective.”

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Palatnik did not disclose which specific banks and other institutions DTCC is communicating with, but he revealed that DTCC is integrating blockchain technology into its big data infrastructure, so that past transactions can be easily searched and viewed like a Google search.

DTCC calls these trials "white zones," where settlement times average about three days but can take months to close. Last week, 500 clients attended a DTCC roundtable, during which the company said its goal is to reduce settlement times to two days by Sept. 5, 2017.

According to Palatnik, while DTCC is a private company owned and used by several banks, it does not intend to promote a single blockchain that it can manage, but rather a common "architecture" composed of different ledgers - each of which is decentralized in its own way and added to the DTCC's securities post-trade service protocol layer.

DTCC was one of the investors in Digital Asset Holdings’ (DAH) $52 million Series A funding round, and as part of the investment agreement, DTCC President and CEO Michael Bodson joined DAH’s board of directors.

Although the DTCC is keeping the details of the blockchain pilot it is participating in secret, we can still find clues from the movements of DAH and its investors. ICAP, one of DAH’s investors, announced last week that it had successfully completed a securities post-trading blockchain trial, which may include DTCC.

Reject or survive

Currently, blockchain technology has attracted many financial giants in the world to join, and they are investing a lot of manpower and financial resources in blockchain to transform the clearing and settlement system. However, blockchain is still in the early stages of development, and doubts are inevitable. Jim Mullen, chief technology officer of Firm58, believes that DTCC's efforts may be in vain. What's going on?

He said the DTCC could implement a distributed ledger that eliminates the need for dealers, but it would still need to be funded, hosted and maintained by a centralized, experienced authority.

“Maybe that’s their role,” he added

Firm58 is a company that manages trading fees for the New York Stock Exchange and other U.S. stock and options exchanges.

In fact, DTCC has faced this kind of crisis and challenge in survival and development. DTCC was founded in 1999 as a result of the merger of the Depository Trust Company (DTC) and the National Securities Clearing Corporation (NSCC) after the 1968 Wall Street crisis document management crisis.

At the time, the soaring transaction speed requirements made the outdated way of transaction documents untenable, and institutions were looking into new technologies to facilitate the digitization of the transaction process. Now, DTCC processes more than 100 million digital transactions every day.

Palatnik concluded:

"I was tempted to fast-forward and see what would have happened a year from now. So we decided to invest all our resources in this."

Original article: http://www.coindesk.com/dtcc-open-business-model-blockchain-disruption/
By Michael del Castillo
Translator: printemps
Editor: printemps
Source (translation): Babbitt Information (http://www.8btc.com/dtcc-open-to-disruption ‎)