Bank behemoths test distributed ledger technology solution for equity swaps
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A group of leading financial institutions including JPMorgan Chase, Credit Suisse, BNP Paribas, and Citigroup teamed up with distributed ledger technology (DLT) startup Axoni in 2016 to build a DLT-based platform to streamline equity swaps.
Now, the collaborators have successfully completed a half-year trial of the solution. Currently, FIs typically build their own systems on which to conduct equity swap transactions, which require bespoke connectivity to one another.
FIs then have to continually monitor external factors that might affect an equity swap, some of which require manual updates to the contracts. Because of this complexity, there is no centralized repository for the clearing or reporting of equity swaps. By contrast, the new solution, which is based on Axoni's smart contract technology, gives all participants in an equity swap access to the same data, making clearing times almost instantaneous, and reducing the possibility of disputes about transactions.
FIs' perseverance in the DLT space is promising. None of the swaps conducted during the trial involved actual money changing hands, but Axoni says that now that the solution has been proven effective, the parties can begin working towards roll out. Although almost no FIs have yet made their DLT solutions for capital markets live, the fact that many have continued to actively work on such projects for a number of years suggests that they see great potential in the technology, and are determined to start using these solutions in a live environment.
Nearly every global bank is experimenting with blockchain technology as they try to unleash the cost savings and operational efficiencies it promises to deliver.
Banks are exploring the technology in a number of ways, including through partnerships with fintechs, membership in global consortia, and via the building of their own in-house solutions.
Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on blockchain in banking that:
- Outlines banks' experiments with blockchain technology.
- Details blockchain projects at three major banks - UBS, Credit Suisse, and Banco Santander - based on in-depth interviews.
- Discusses the likely trends that will emerge in the technology over the next several years.
- Highlights the factors that will be critical to the success of banks implementing blockchain-based solutions.
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