A group of nine firms organized by Axoni, a provider of distributed-ledger solutions, successfully completed a test of blockchain technology and smart contracts for managing affirmations and post-trade lifecycle processing for over-the-counter (OTC) equity swaps.
The experiment was able to show the efficiency improvements and cost savings around mark-to-market calculations, margin payments and corporate action processing when done on a permissioned ledger.
Barclays, Citi, Credit Suisse, JPMorgan and one undisclosed Tier-1 bank were involved in the project. IHS Markit, Thomson Reuters and Capco also participated.
The experiment, which lasted several months, involved establishing a blockchain trade processing network via hosted and locally installed deployments of Axoni Core, the vendor's proprietary distributed-ledger software. Automated lifecycle management was tested, as well as synchronization of single-stock, index and portfolio swaps.
The firms conducted 133 test cases, all of which were a success, to examine functional and non-functional capabilities of blockchain technology in the equity derivatives space.
Deep Dive of Test
As part of the tests, smart contracts were created from simulated legal confirmations through IHS Markit's MarkitSERV and trades sent by dealers on the distributed network. Event processing and payment calculations based on market events were handled by economic terms and computational logic put in the smart contracts.
Thomson Reuters BlockOne for Datascope was integrated with Axoni's software to offer valuations and include market data on the blockchain.
Over 50 tests were also done on the Axoni Core infrastructure, including adding and removing permissions for participants, updating protocol in a simulated live environment, monitoring the capacity to process messages, and testing the resiliency of the technology during network events. Transparency of the system for regulators was also tested.
"Complex contracts, a distributed market structure, and replicated workflows across many parties make blockchain technology a natural fit for equity derivatives," said Greg Schvey, Axoni CEO, in a statement. "Moreover, demonstrating this can be achieved on the same technology also utilized to optimize post-trade asset servicing for credit derivatives further proves the multiplicative value of deploying this infrastructure. It was a pleasure to work with exactly the type of influential and forward-thinking parties required to make this project impactful."
Jesse Lund talks about real uses for DLT in the capital markets, lessons learned while rolling out IBM's blockchain platform, and what’s ahead for 2018, and into 2019.Subscribe to Weekly Wrap emails