Super giant DTCC releases blockchain white paper: Embrace disruption

Rage Review : DTCC (Depository Trust & Clearing Corporation) is a veritable giant in the financial services industry, processing nearly 200 trillion in securities transactions annually, and its repository provides custody and asset services for securities worth 39.5 trillion US dollars issued by 122 countries and regions. DTCC's global over-the-counter derivatives transaction data repository records global transactions with a total notional value of more than 500 trillion US dollars. DTCC has always maintained a strong interest in this blockchain technology revolution. It not only invested in DAH and joined the board of directors of DAH, but also participated in the blockchain-based "Hyperledger" project promoted by IBM and the Linux Alliance. Based on their more than four decades of experience in financial services infrastructure, they provide extremely professional analysis in the white paper.

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The Depository Trust & Clearing Corporation (DTCC), the world’s foremost financial services firm that processes the post-trade market structure, today published a white paper calling for industry-wide collaboration to leverage distributed ledger technology to modernize, organize and simplify the traditionally closed and complex financial industry structure, and to address the current limitations of the post-trade process.

DTCC’s President and CEO said,

“The financial industry has a unique opportunity to modernize its structure and address long-standing operational challenges. To responsibly realize the potential of distributed ledger technology and avoid multiple unconnected, siloed solutions, the industry must work together.”

The title of the white paper is "Embracing Disruption - Exploiting the Potential of Distributed Ledgers to Improve the Post-Trade Environment". The paper points out that although the current financial market structure provides stable, reliable and traceable records, it is still very complex and closed, and cannot be processed 24 hours a day, 365 days a year. DTCC believes that a series of assets with a distributed ledger with complete and traceable transaction records are safe, and these records are only developed for trust parties, which will greatly improve transactions, reduce risks and reduce post-trade costs.

Based on DTCC's research and analysis, DTCC recommends developing targeted opportunities to improve existing structures in certain identified areas where automation is limited or non-existent and new technologies offer significant advantages over existing processes. Opportunities to be developed include: master data management, issuance and servicing of assets/bonds, confirming asset transactions, transaction/contract confirmation, recording and matching complex asset types for which there is currently no effective solution, netting, collateral management, and long-term settlement.

However, the white paper reminds that distributed ledger technology is not yet mature and has not been proven. At present, the technology has inherent scale limitations and lacks underlying structures, so it cannot be fully integrated into the existing financial market environment. Therefore, this technology may not be a solution to every problem, but we can regard it as an alternative. We evaluate the possibility of cost reduction and risk reduction through standardized workflows and expanded use of cloud technology.

Industry-wide collaboration and cooperation <br/>The white paper also points out that, to date, the parties have not begun to collaborate on research, and therefore the industry is at risk of repeating past failures, resulting in numerous complex closed solutions based on different standards and with major compromises. The most logical approach is for existing, regulated, credible central authorities to play a leading role in helping the technology develop, introducing standards, management and technology for the application of distributed ledger technology. In addition, we believe that these institutions should work with the entire industry to ensure that new opportunities and new technologies can bring benefits to the post-trade process, consistent with the long-term goal of reducing risks, improving efficiency and reducing costs for market participants.

Bodson said,

“The approach currently being privately tested by many firms is one that uses consensus protocols to provide transparency. This approach is likely to result in an unchanged post-trade environment, with many firms still facing integration and reconciliation issues. As a financial markets firm with more than 40 years of existence, DTCC is uniquely positioned to lead a research effort to explore how distributed ledger technology can simplify or replace existing post-trade systems.”

DTCC has made a commitment to promote distributed ledger technology in the post-trade space. As part of this commitment, DTCC has recently invested in Digital Asset Holdings (DAH). DAH is a company that develops distributed ledger technology for the financial services sector, and Bodson will become a member of the company's board of directors. Through this investment, DTCC promotes industry-wide collaboration and helps introduce standards, corporate governance and technology to support the application of distributed ledgers.

DTCC has also joined the Linux Foundation, a non-profit organization that enables large-scale innovation through open source. Together with the Linux Foundation, DTCC assists with a collaborative project called Hyperledger, which is advancing blockchain technology. Through this partnership, DTCC can play a key role in establishing corporate governance, setting standards for the technology, and ensuring that the technology is open source.

About DTCC

The Depository Trust & Clearing Corporation (DTCC) and its subsidiaries automate, centralize and standardize financial transaction processing for thousands of institutions around the world through multiple operating facilities and data centers around the world. With nearly 40 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry, simplifying the complexities of clearing, settlement, asset servicing, global data management and information services for equity, corporate and municipal bonds, government and mortgage-backed securities, derivatives, money market instruments, syndicated loans, mutual funds, alternative investment products and insurance transactions. In 2011, DTCC processed securities transactions with a total value of approximately $1.7 trillion. Its repository provides custody and asset services for securities worth $39.5 trillion issued in 122 countries and regions. DTCC's global repository of over-the-counter derivatives transactions records global transactions (including multiple asset classes) with a total notional value of more than $500 trillion.

DTCC’s Global Trade Repository intends to expand its operations to Singapore, establishing a global data center headquartered in Asia to ensure regulators have seamless access to data used for systemic risk mitigation in the OTC derivatives market. DTCC is committed to helping clients and regulators around the world build a strong operational infrastructure that can improve transparency and reduce risk in the OTC derivatives market. DTCC’s Global Trade Repository service plays an important role in helping public and regulatory authorities around the world gain a comprehensive understanding of the risks associated with market participants engaging in OTC derivatives transactions and better understand the size and scope of this complex market. DTCC’s plans and strategies are designed to ensure that the Global Trade Repository can provide timely and equivalent trade information to regulators around the world. In addition, as regulators around the world develop new rules requiring reporting of all derivatives and other OTC transactions to the Trade Repository, the data center will help market participants meet current and future regulatory requirements.

DTCC has also established a new European data center in the Netherlands to support the Global Trade Repository. The Singapore data center is expected to be completed and operational by the end of the second half of 2012. DTCC also intends to register all five asset classes for the Global Trade Repository in Singapore and will work closely with Singapore, all regional regulators and industry to gain greater recognition for the Global Trade Repository as DTCC expands its business into Asia. DTCC has been awarded highly competitive contracts from the global OTC derivatives industry to build repositories designed to report information to regulators on global OTC credit, equity, interest rate, commodity and foreign exchange derivatives transactions. The global repositories for credit, equity, interest rate and commodity derivatives are already operational, while the repository for foreign exchange derivatives is expected to be operational later this year.

DTCC developed the world’s first trade repository for OTC credit derivatives, initially known as TIW. Today TIW stores information on more than 98% of all global OTC credit derivatives trades. After a competitive process, DTCC subsequently received industry approval to develop a global trade repository service for the OTC equity, interest rate, commodity and foreign exchange markets. To support these markets, DTCC also developed an independent web-based regulatory portal that provides regulators around the world with access to near-real-time information on credit derivatives transactions, based on a voluntary reporting agreement and supervisory authority authorization. The portal was later expanded to cover OTC equity derivatives and interest rate derivatives, and will also be used for commodity and foreign exchange transaction reporting. Approximately 40 regulators around the world currently use the portal to monitor derivatives.