A blockchain solution to optimise repurchase agreement (repo) clearing processes is currently under construction.
The Depository Trust & Clearing Corporation (DTCC), a post-trade market infrastructure for the global financial services industry, and Digital Asset Holdings (Digital Asset), a software company providing distributed, encrypted straight-through processing tools, are joining forces to develop and test a distributed ledger-based solution to manage the clearing and settlement of US government securities, agency, and agency mortgage-backed repurchase agreement (repo) transactions.
As repo transactions volumes continue to grow, the DTCC and Digital Asset want to seize the opportunity to streamline the clearing process by leveraging the digital ledger’s real-time information-sharing capabilities.
The aim is to reduce risk and capital requirements for the repo market by enabling the DTCC’s Fixed Income Clearing Corporation (FICC) to become the settlement counterparty for repo transactions in real time – right now, the FICC is able to provide the matching and verification of the initial step of the repo, but it is unable to settle it for same-day starting trades. A blockchain solution would allow the parties in the repo trade to view details almost immediately after the trade has occurred, thus improving the speed, cost and risk of agreeing to the repo trade details.
“Distributed ledger technology has the potential to revolutionise certain post-trade processes that are inefficient and complex, and repos are a great place to start. There are absolute opportunities to make clearing in this area much more efficient, and we look forward to working with Digital Asset on this exciting project. This initiative reflects our strong commitment to leverage this technology and help lead the industry to further lower risk and increase efficiency across financial markets,” says Mike Bodson, DTCC president and CEO.
“This collaboration further demonstrates Digital Asset’s commitment to enhancing post-trade processes for financial market infrastructure providers and market participants,” adds Blythe Masters, CEO of Digital Asset.
The first phase of the project will start immediately, with the development of a proof of concept to be integrated into the DTCC system. Future plans involve collaboration and testing with market participants.
The DTCC contributed to Digital Asset’s fundraising efforts at the beginning of 2016, which totalled US$60mn and involved 15 tech and financial institutions.