Buy Side Quiet on DLT
Investment managers need to engage in the development and deployment of distributed ledger technology further, according to recently published research by Aite Group.
At the moment, the buy side is sitting on the fence, according to Javier Paz, Aite senior analyst.
He rates the buy side’s awareness of distributed technology as a three or four on a scale of 1 to 10.
“They cannot avoid hearing about blockchain, but I think they fail to see how it is relevant to a majority of them,” he said. “In terms of blockchain’s applicability to their operations, it should be an eight or a nine. During this time of cost cutting a fee compression, it is unacceptable for the buy side, and particularly the asset owners, to tolerate inefficient operations on their end.”
Asset managers can experience improved efficiency in their reconciliation processes as well as e-proxy voting and corporate actions functions.
Paz believes that corporate actions platforms based on DLT are not that realistic due to the complexity and multiple nuances involved in the processing corporate actions. However, he envisions that DLT would be able to tackle the problems with corporate actions and asset servicing in five to ten years.
Despite these benefits, buy-side representation on various distributed-ledger consortiums is small.
“We have isolated reports from some buy-side firms participating in at least three proof-of-concept announcements,” wrote Paz in his impact note. “The management of R2 reported that its Corda platform incorporated buy-side requirements provided by banks. As part of its planned DLT settlement system upgrade, ASX reached out to buy-side clients in August 2016 for platform design input.”
The buy side is in a unique situation where it has to opportunity to have an active voice in determining which two or three platforms that the capital markets will adopt, he added.
If the buy side does not actively participate then there is a good chance that the decisions will be made for them and have the platforms forced upon them.
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The proof of concept uses smart contracts from Digital Asset and DLT from VMware.
The network is driving adoption of standardized post-trade swap data models and workflows.
The market maker will contribute real-time crypto market data before expanding into equities.