RiskTech Forum

DTCC: Modernizing Market Infrastructures with Fintech

Posted: 1 May 2017  |  Author: Larry Thompson  |  Source: DTCC


It is no longer a question of if distributed ledger technologies (DLT) will bring improvements in the post-trade area, but rather when and to what extent these changes may occur. Fintech developments including DLT, cloud computing, robotics and artificial intelligence are well positioned to modernize the current post-trade process and streamline the siloed design of the financial industry infrastructure. However, the timing and final application of these technologies are yet to be determined.

DLT has garnered significant attention due to its potential to further mitigate risk and reduce costs in the processes of clearing, settlement and payments in financial transactions, as well as its potential application in derivative data processing.

However, the financial services industry needs to evaluate where this technology may provide the greatest benefits and overcome potential limitations. Use of DLT does not necessarily guarantee efficiencies and costs savings for all post-trade processing. For example, The Depository Trust & Clearing Corporation (DTCC) does not see near-term benefits of employing DLT for clearing and settlement of U.S. markets for equities and most fixed income.

However, by integrating DLT in certain areas of the post-trade environment, where automation is limited or non-existent, the technology could provide benefits over existing processes, especially when coupled with industry-wide coordination.

DLT for TIW

As a provider of risk management and data/transparency services to the industry globally, DTCC continues to closely examine emerging innovation. To this end, we recently announced plans to replatform DTCC’s Trade Information Warehouse – a repository for credit default swap (CDS) contracts – from its current mainframe application to a DLT network.

This follows an earlier proof of concept which demonstrated that complex post-trade events inherent to CDS can be managed efficiently with DLT in a permissioned, peer-to-peer network. DTCC is also working with Digital Asset Holdings, a blockchain developer for financial services, to develop a DLT-based system for clearing and settlement of U.S. government securities repurchase agreements.

Wide scale adoption of DLT is possible, provided that challenges are addressed at the onset. It is important to note that the benefits of employing fintech in the current post-trade process should not frustrate key policy goals established globally. The mitigation of systemic risk, preservation of market integrity and enhanced transparency are longstanding policy goals that must remain at the forefront of any financial innovation experiment and implementation.

Industry and regulatory collaboration are necessary to ensure required standards and governance models are developed effectively. Industry participants and policymakers alike need to continue advance preparations for emerging innovation in securities markets and post-trade infrastructures.