In the latest blockchain experiment carried out under the R3 banner, major banks including Citi and HSBC are looking into how distributed ledger technology can be used to simplify reference data processes.
Reference data is a major pain point for financial firms, which suffer from a lack of automation and a reliance on legacy systems, meaning that they each have their own records, with inevitable and costly inconsistencies that need to be reconciled.
Working with R3 and capital markets tech startup Axoni, seven buy-side and sell-side firms have completed a multi-month proof-of-concept exercise, coordinated by Credit Suisse, which aimed to tackle these problems through a distributed ledger prototype.
The prototype was created using Axoni’s proprietary distributed ledger software to simulate the collaborative management of reference data, as well as the use of that data for corporate bond issuance. Participants could interact with reference data after issuance, with any proposed changes requiring validation by the underwriter to ensure the ledger provided a single, immutable record of all data related to the bond.
The partners say that their prototype shows how blockchain technology can be used to allow regulators and network participants to view in real time which parties on the ledger have created, issued and proposed amendments to the data record.
Emmanuel Aidoo, head, distributed ledger, Credit Suisse, says: "Using Blockchain and Distributed Ledger Technology as a shared reference data backbone for the industry makes intuitive sense. Our vision is to demonstrate how distributed ledgers applicability can go beyond settlement and help reduce duplicate reference data costs and improve data latency which will ultimately lower costs and reduce operational risks."
David Rutter, CEO, R3, adds: "Quality of data has become a crucial issue for financial institutions in today’s markets. Unfortunately, their middle and back offices rely on legacy systems and processes - often manual - to manage and repair unclear, inaccurate reference data.
"Distributed ledger technology - which allows financial institutions to push these functions to a cloud environment - removes the need to reconcile multiple copies of data, providing a sophisticated and agile solution to the headaches currently caused by these legacy systems and processes."