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Major banks perform successful test of smart contracts in CDS market

07 April 2016  |  10242 views  |  0 chequered flag

Four major banks, the DTCC and Markit have announced the completion of a successful test of the use of distributed ledger technology and smart contracts to manage post-trade processes in the credit default swaps market.

Over the course of the multi-month project, the banks - Bank of America Merrill Lynch, Citi, Credit Suisse, JPMorgan - acting in concert with the DTCC and Markit established a blockchain trade processing network across a blend of hosted and locally-installed deployments of software from distributed ledger technology outfit Axoni.

In the test, Markit generated smart contracts from CDS trade confirmations sourced from MarkitSERV embedded with economic terms, as well as computational logic to manage permissions and event processing. Real-time regulatory outputs included individual trade details, counterparty risk metrics and systemic exposure to each reference entity.

The group says it conducted 85 separate tests, including integration with external systems, network resiliency, and data privacy, with a 100% success rate.

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

The initiative lends credence to the words of Blockchain cheerleader Blythe Masters, CEO of Digital Asset Holdings, who told delegates at the Money20/20 conference in Copenhagen that blockchain technology would come online in the financial industry within the next two years, although it will take between five and ten years for the technology to become commonplace.

The DTCC is currently working with Digital Asset on a proof-of-concept test for the use of distributed ledger technology in repo markets.

Earlier this year, the depository pitched itself as the coordinator of an industry-wide investigation into whether distributed ledger technology is the answer to "certain limitations" in the post-trade process.

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