Settlement Archives

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.

With the launch of bitcoin and blockchain technology, it is evident that the world is open to adopting disruptive technologies. Major financial institutions are adopting the ledger based technology for simplifying their financial operations. Let’s look into how these organizations are leveraging blockchain for their operations:

Goldman Sachs’s Patent Application:

Goldman Sachs has submitted a patent application focusing on how blockchain could cut out the middle man with transaction costs. The patent claims that the technology could change the current process. U.S. Patent and Trademark Office (USPTO) published the patent on September 8^th. Filed in March 2015, it was Goldman Sach’s first blockchain focused patent.

The patent said:

“These systems suffer from significant disadvantages in terms of privacy, because they maintain balances and transaction records in publicly accessible ledgers on distributed servers.”

This means that if a bank blockchain is transparent, it gives competitors the ability to place opposing suitable trades. This thereby reduces the competitive nature of foreign exchange trading. By submitting the patent, Goldman Sachs is aiming to combine the advantages of blockchain with technologies. These technologies primarily focus on delivering security, privacy, and comply with regulations.

Financial Firms back Blockchain for Data Management:

Axoni has integrated the financial firms for the blockchain trial

Blockchain firms Axoni and R3CEV have announced a Blockchain Trial to test Data Management of the ledger system. Among the major financial firms to participate in the trial Credit Suisse, Citi and HSBC are prominent ones.

Featuring buy-side and sell-side firms, the effort envisioned how a distributed ledger prototype helps the industry. Key factors taken into consideration are to enhance risk management, cost and efficiency issues when managing financial reference data. Also involved was the Securities Industry and Financial Markets Association (SIFMA), a trade group representing US securities firms.

According to the companies involved, the project demonstrated how regulators and network participants can use the technology. It shows how one can see which parties on a ledger created, issued and proposed amendments to a data record.

JP Morgan seeks faster settlement time through Blockchain:

In spite of massive investment in financial technology, JPMorgan still has some distance ahead to meet its blockchain objectives. Abhijit Gupta, multinational bank’s head of science and technology told he had concerns about “speed” of blockchain settlement. The details come months after the bank first began disclosing its blockchain work. In February, JPMorgan conducted internal test moving money between London and Tokyo as part of a trial. This trial involved 2,200 of its clients, according to a Wall Street Journal report. A month later JPMorgan unveiled its work on Juno, a distributed ledger project published with the Linux Foundation-led Hyperledger initiative.

If JPMorgan still has long way to go before meeting its blockchain objectives, reports show the bank is financially committed to the course, along with other areas of technology.

Tag: Settlement

Can Blockchain speed up Post Trade Processing?