Trade settlement giant DTCC has released a new report that recommends industry stakeholders experiment with blockchain implementations while cautioning against the growing hype surrounding the technology.
DTCC released its report more than a month after the firm announced its participation in an effort led by the Linux Foundation to develop an open-source blockchain initiative called the Open Ledger Project.
The report, entitled “Embracing Disruption: Tapping the Potential of Distributed Ledgers to Improve the Post-Trade Landscape”, offers a tempered endorsement of the technology and identifies several aspects that could be applied to the post-trade environment.
The authors of the report state:
“There are several key features that make this technology a potentially attractive option to improve existing processes, including the fact that standard rules exist for securities transaction validation and replication; immutable linkage to transaction history and auditability.”
Yet, the report goes on to state that further work is needed before the financial services industry should move to adopt it.
Steps recommended include the development of industry standards and an analysis of whether the benefits of changing post-trade systems to utilize blockchain technology outweigh the costs.
“In addition, the industry itself needs to determine whether using the platform is more cost effective than improving existing technology and whether it can overcome its inherent scale and performance challenges,” the report states.
Despite the questions, DTCC suggests that a number of market mechanics could be augmented or replaced with the technology, including securities issuance, settlement and servicing; collateral management; netting and clearing; and data management.
Notably, its report, DTCC raised the question of whether an industry push toward real-time trade settlement necessarily requires the use of a blockchain. Firms like Overstock, with its tø platform, are currently pushing for the adoption of blockchain technology as a mechanism for securities trade and issuance.
DTCC also raises questions about the degree to which the blockchain is being hyped – a situation it says puts the trade settlement industry in a position of repeating past mistakes when it comes to experimenting with and potentially adopting new technology.
“As a result, the industry is at risk of repeating the past and creating countless new siloed solutions based on different standards and with significant reconciliation challenges – essentially a new system with the same challenges we face today,” the report states.
The full report can be found below:
DTCC office image via Glassdoor