The clearing and settlement of U.S. treasury, agency, and agency mortgage-backed repurchase agreement transactions, known as ‘repos’, could be soon transformed. Plans were announced today by Depository Trust & Clearing Corporation (DTCC) and Digital Asset Holdings, as the companies intend to develop a distributed based ledger solution aimed to improve post-trade processes.
In the U.S. over $2 trillion worth of repos are traded on a daily basis, according to data from FINRA, and it is thus a sizable market. DTCC is a leading provider of post-trade market infrastructure for the global financial services industry, and Digital Asset is a software company that develops encrypted Straight Through Processing (STP) tools and solutions aimed towards increased settlement speed.
Commenting in the joint press release, DTCC CEO and President Mike Bodson said: “Distributed ledger technology has the potential to revolutionize certain post-trade processes that are inefficient and complex, and repos are a great place to start. There are absolute opportunities to make clearing in this area much more efficient, and we look forward to working with Digital Asset on this exciting project. This initiative reflects our strong commitment to leverage this technology and help lead the industry to further lower risk and increase efficiency across financial markets.”
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Blockchain style ledger
As part of the deal the companies agreed to develop and test a new proof of concept aimed to increase market efficiency from a post-trade perspective, using a distributed based ledger solution from Digital Asset. Repos were chosen first as the manner in which they are cleared can become more streamlined as existing volumes continue to grow.
For the project announced today, the companies are aiming to lessen the risk and capital requirements for the repo market by enabling DTCC’s fixed income clearing corporation (FICC) division to become the settlement counter party in real-time, for the related repos. Unlocking this ability would allow additional netting and offsets, as opposed to the current multi-step process, as the real-time settlement is enabled through the blockchain-like distributed ledger.
The announcement appears to have been timed with the Blockchain symposium event that DTCC hosted earlier today in New York, where one of the event’s panels featured CFTC commissioner J. Christopher Giancarlo speaking about views on how blockchain technology can impact regulatory and policy goals.