The inception of cryptocurrencies has added a lot of value to the financial markets and the business of transactions. However what came as a blessing in disguise is the ledger based technology that has huge potential in disrupting trade finance and settlements. Similarly, Post-trade derivatives processing is a complex and important part of everyday global financial markets. As blockchain-inspired technology for financial services continues to mature, post-trade infrastructure providers are collaborating with the industry to explore how it can be used to increase the efficiency of systems and processes driving the contracts of the global derivatives markets.
Post Trade Processing Overview:
When a trade between two parties has been confirmed on a trading platform, a ticket is passed to both sides, allowing them to carry out post-trade activities. Both parties receive a digital representation of the commercial contract into which they have entered. As time passes, real-world facts (e.g., price movements) are taken into account and the contract might be revalued. Parties then agree on what action is to be taken (who pays whom, how much of what) and settle the contract.
Traditionally, this process involves multiple systems within each organization, independent data storage etc either directly between the two parties or against a third-party intermediary.
How Blockchain can fit:
Instead of recalculating the market pricing at every step and renegotiating the stance, any calculation performed during the trade’s lifecycle would anyway use exactly the same input data. Hence storing the input data functions into Blockchain by mutual consent would allow for processing even at a very later stage.
This means that the reconciliation of data is built-in at every step, reducing process overheads. Payments can also be made with immediate effect, if the ledger has a representation of the cash or asset being paid. This can also be calculated and disbursed with appropriate mutual consent. This programmable blockchain post processing methodology might be exactly what markets need right now. Built into the foundation of distributed ledgers, the information can be also monitored even after long periods of time to check for compliance issues if required.
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