DTCC Develops Blockchain Solution For Credit Default Swaps
The Depository Trust and Clearing Corporation (DTCC) will rebuild its Trade Information Warehouse (TIW) post-trade processing platform to utilize blockchain technology. In a keynote speech at a workshop on “Setting Global Standards for Granular Data: Sharing the Challenge” in Frankfurt, Germany, Larry Thompson, vice chairman of the DTCC, detailed its collaboration with IBM and other firms to reduce costs associated with TIW.
“TIW is a post-trade processing platform for approximately 98% of credit derivatives globally. It also provides reporting and execution of various CDS [credit default swaps] life-cycle events for those trades,” said Thompson. “We are pursuing the re-platform with our customers because the CDS market has changed significantly since the financial crisis.”
In a CDS, a buyer (usually the creditor on a loan) makes swap payments to the swap seller until the maturity date on the contract expires, and in return the swap seller agrees to compensate the swap buyer in the event the debtor defaults. In his speech, Thompson highlighted the importance of TIW, stating that it “serves as the source of the ‘golden copy’ of record for the Credit Default Swaps it processes.” If parties to the CDS disagree on the transaction or its terms, they can look to the TIW as the best record of the transaction. Thompson emphasized that integrating the TIW with blockchain technology will leverage TIW’s “role of ‘keeper’ of the golden record” “by potentially eliminating any discrepancy in contract terms between counterparties,” and eliminating reconciliation costs.
Thompson also addressed the need for the industry to work together to agree to a set of standards for blockchain technology, otherwise, he warned, “we are at risk of repeating the past and creating new siloed systems that cannot interact with each other.” He noted DTCC’s role with the Hyperledger Foundation and two Washington, D.C. technology think tanks.
“In our space, DTCC believes we can play an important role to facilitate and even convene collaborative conversations about what the hallmarks of an enterprise-ready blockchain network or distributed ledger should be. In this respect, we have representation on the governing board of the Hyperledger Foundation to help steer such conversations.”
On February 27, 2017, DTCC announced the successful demonstration of a blockchain-based system for managing clearing and settlement processes for US Treasury and Agency repo transactions.