DTCC to Expand Fintech R&D
The Depository Trust & Clearing Corporation will continue to expand research and development in new technologies and the US financial market infrastructure is looking to hire in London to be closer to the fintech community.
Jennifer Peve, managing director of business development, partners and fintech strategy at DTCC, told Markets Media: “Our priorities continue to focus on expanding R&D activities in areas such as machine learning and tokenised securities, as well as continue to work with the industry on applications of distributed ledger technologies.”
Peve continued that DTCC is already actively involved in the real-life application of DLT which is being used to re-platform the infrastructure’s Trade Information Warehouse. The initiative aims to migrate an existing industry-wide ledger for credit default swaps from a legacy mainframe database to a cloud-based DLT platform.
Rob Palatnick, managing director, chief technology architect at DTCC, told Markets Media last week that coding has finished for the blockchain-based TIW. Palatnick said: “We’re just working through the typical defect list and trying to start user acceptance testing this fall.”
The industry utility has partnered with IBM and Axoni to integrate enterprise database technologies into the new platform.
“Generally, distributed ledger technology is not a reporting technology,” Palatnick said. “Reporting and analytics are not easy on most DLT core platforms, so you need some kind of accommodation to support that.”
Peve continued that DTCC also executed a benchmark study on US equities using DLT last year to address concerns about scalability. DTCC worked with technology providers Digital Asset and R3 Corda over 19 weeks.
“This demonstrated that DLT is capable of handling up to 6,300 trades per second continuously for five hours,” she said.
This volume equates to 115 million daily trades but Peve explained that DTCC wants to carry out more testing to ensure that DLT can meet the resiliency, security, and regulatory performance of the existing clearance and settlement infrastructure.
“We want to further explore the boundaries with respect to throughput, resiliency of the technology and the use of smart contracts,” she said.
Peve added that for DLT applications to move forward in the next year the industry needs to clearly articulate the costs at a granular level, e.g. for maintaining a certain number of nodes, and the underlying purpose of deploying a DLT tool.
“In some cases, there are other technologies that can offer the same benefits, such as encryption, and are more proven,” she said.
DTCC, together with consultancy Accenture, said in a white paper this month that the financial industry need to introduce a DLT governance operating model to ensure the safety and soundness of the network for the benefit of all participants and to better enable DLT to reach its full potential.
Have you read our latest white paper produced in collaboration with @The_DTCC? Governing #DLT will be a hot topic at #Sibos. Visit us in the @Accenture, DTCC or @Hyperledger booths to learn more. https://t.co/fOgHme1jJ6 pic.twitter.com/NZ8bvzZcUU
— Meredith Bennett (@mcsolberg) September 21, 2019
The paper proposes a governance model for operating and maintaining a private, permissioned DLT platform in eight functional areas including a governing function to make decisions that will affect activity, connectivity, software changes, contractual agreements and transaction finality for every participant across the entire network.
Palatnick said in the report: “Distributed ledger technology, with its built-in consistency, security and privacy, holds great promise to transform the digital landscape, but DLT’s full potential will only be realized with the implementation of a strong and transparent governing model.”
DTCC is also monitoring crypto assets and has been looking at the most appropriate post-trade infrastructure for tokenised securities platforms.
The firm has built a database of more than 200 technology providers which includes fintechs and some incumbents across the trade life cycle.
“As a result we are well-placed internally to provide recommendations on partners if our business is looking to add or expand a capability, or launch something new,” said Peve.
She continued that DTCC is also looking to hire in London in order to stay close to the fintech community.
There have been record levels of investment in UK fintech this year according to new research based on Pitchbook data by London & Partners and Innovate Finance.
Our recent report with @londonpartners shows #London as the top European city by deal value in 2019 for #FinTech investment, attracting $2.1 billion. 2019 so far has seen 114 deals in London. To find out more and read the full report, click here: https://t.co/72q0dORlan pic.twitter.com/7fXRp0loff
— Innovate Finance (@InnFin) September 24, 2019
Peve continued that return on investment is important for DTCC’s fintech projects – but there are also other considerations. “For a project to be meaningful it should reduce risk and cut costs by removing manual processes or improving customer experience,” she added.
In addition the timeframe for achieving what is considered to be success in business terms has compressed significantly and firms may no longer have three years to generate ROI. “If you achieve value in 18 months that is formidable, but very difficult to do,” said Peve.
Despite the challenge from fintech start-ups, Peve is confident there will be space for incumbents in the new market structure.
“Small changes can make a big difference and in five years’ time the financial industry will not look the same,” she said. “For incumbents, there are numerous opportunities to deliver new products and services leveraging technology such as artificial intelligence, APIs, DLT.”
Project Ion has shown that T+1 or T+0 settlement are effective use cases for DLT.
The network is driving adoption of standardized post-trade swap data models and workflows.
Interoperability with current capital markets infrastructure is a challenge.
DLR has executed $35bn in average daily volume in the first weeks since launch.
Corporate bond trading platform built on DLT will use Validus for surveillance and monitoring.