Four Banks, DTCC, Markit Complete Blockchain Test for CDS

Bank of America Merrill Lynch, Citi, Credit Suisse and JPMorgan participated in the multi-month project that looked to demonstrate that payments, amendments, novations and compressions can all be managed via the blockchain on a permissioned, distributed, peer-to-peer network.

The experiment conducted 85 structured test cases to check lifecycle functionality, integration with external systems, network resiliency and data privacy. There was a 100-percent success rate across all tests.

"It's a pleasure to be part of such a tremendous step forward," says Axoni CEO Greg Schvey. "The participants in this project can catalyze true progress in this space, having consistently demonstrated the motivation and technical sophistication necessary to tackle the speed, scale, and complexity of this undertaking."

Process

The group of firms created a blockchain trade processing network with a combination of hosted and internal deployments of Axoni software. CDS transactions were chosen because of their multiple lifecycle events and the efficiency benchmark established by the DTCC Trade Information Warehouse (TIW), a post-trade asset servicing of credit derivatives.

Markit created smart contracts from CDS trade confirmations sourced via MarkitSERV. Economic terms and computational logic for managing permissions and event processing were embedded within the smart contracts. Blockchain's transparency was also on display, as trade details, counterparty risk metrics and systemic exposure to each reference entity could be made available to regulators in real time.

"Our experiments with Axoni demonstrate that confidentiality and privacy can be preserved between bilateral parties on an immutable distributed ledger at scale," says Emmanuel Aidoo, leader of blockchain and distributed ledger function at Credit Suisse.