It’s been a busy week for R3 CEV. The blockchain consortium has partnered with Credit Suisse, Intel and Axoni to advance the use of distributed ledger technology in real world use-cases.
As the financial services industry rushes to integrate the nascent technology, blockchain to a variety of markets and applications, we take a look at how a single shared ledger for financial transactions could enhance US Treasury trading, the reference data industry and syndicated loans space.
The R3 consortium has successfully completed blockchain testing for bond trading in partnership with Intel. The test, which involved eight banks including HSBC and State Street, enabled trading, matching and settlement of US Treasury bonds, as well as automated coupon payments and redemption.
The initiative is intended to simplify and standardise protocols and processes in the US Treasuries trading, a market that has become increasingly complex of late, as noted in a recent Fintech Focus article. In the clearing arena for example, challenges persist. While the Fixed Income Clearing Corporation (FICC) acts as a central counterparty for its membership, non-bank firms often don’t qualify for membership and if they do, find FICC membership costs prohibitive, opting instead for bilateral settlement outside the CCP model.
Symbiont and data provider Ipreo have joined Credit Suisse in utilising R3’s Lab and Research Centre to test how distributed ledger could be used in the syndicated loans market. By connecting agent banks via a blockchain, the initiative is expected to achieve faster and more secure settlement in the loans market.
The user benefits are clear and demonstrate the value distributed ledger technology can deliver in a wide variety of fields. Loan investors will have direct access to an authoritative system of records for syndicated loan data, a process that will reduce manual reviews, data re-entry and systems reconciliation.
At present, the syndicated loans market requires each participants involved in a transaction to maintain its own separate lending system. By adopting blockchain technology, loan processing can be done exclusively on a shared distributed ledger – minimising middle and back office operations.
Reference Data Market
R3 CEV has also announced a collaboration with capital markets technology provider Axoni, to test how blockchain technology can be used to enhance the reference data market. The project, which also involves Alliance Bernstein, Citi, Credit Suisse and HSBC is the latest example of how the financial services industry is finding new applications for the technology.
Reference data has become a real issue in financial markets of late as it accounts for up to 70% of the data used in transactions, but continues to be supported by legacy technology that often requires manual processing and constant upkeep. With reference data adding significantly to operational costs and ultimately affecting the bottom line for cost conscious institutions; it is a market ripe for innovation.
Moreover, as the market continues to grapple with regulatory measures designed to ensure firms manage and maintain the quality and accuracy of their reference data, many are now exploring the possibility of streamlining the process via a distributed ledger.
While those institutions developing blockchain solutions may have passed the proof of concept test, the need to tailor this technology to a variety of different use cases now presents the next challenge.