IBM Partners With Wall Street to Bring Blockchain to CDS Market
Wall Street’s largest back-office processing service is partnering with IBM to upgrade how payments and record-keeping for credit-default swaps are handled by putting the system on a blockchain by early next year, according to Bloomberg.
Depository Trust & Clearing, the New York-based utility that settles and clears all stock and bond trades in the U.S., is seeking to reduce redundancies and cut costs in the system that manages $11.7 trillion in outstanding credit swaps, the company said in a statement. IBM, as well as blockchain startups R3 and Axoni, will help DTCC create the single network of credit-swaps users.
The shift is similar to a plan by Digital Asset Holdings to move all clearing and settlement of stocks on the Australian Stock Exchange to a blockchain, which is also referred to as a distributed ledger. Wall Street has been seeking ways to use distributed ledgers for the past several years as a way to cut costs by speeding up securities and derivatives settlement times. Just over a decade ago in the credit-swap market, for example, backlogs of up to 17 days’ worth of trading built up before the market became electronic.
Trade processing is now done electronically, but banks and money managers maintain their own record of trade details in private databases. That means details must be reconciled among the different users, which takes time and can be error-prone. A distributed ledger, on the other hand, allows all those users to share the same exact data so that confirmations, payments and other processing can be done in seconds rather than days.
Distributed-ledger technology has captivated Wall Street executives because it could process virtually any kind of trade or money transfer in minutes rather than days. That vastly reduces the amount of capital that must be set aside until transactions are settled. Industries such as health care, supply-chain management and mining are also experimenting with the software to improve efficiency or ensure the provenance of diamonds, for example.