New York, San Francisco, and London - The group, working with R3 and Axoni through the Securities Industry and Financial Markets Association (SIFMA), recently completed a multi-month proof of concept (PoC) exercise, coordinated by Credit Suisse, that aimed to build a distributed ledger prototype that can enhance the risk management, cost and efficiency issues inherent in managing financial reference data.
The prototype was created using Axoni Core (Axoni's proprietary distributed ledger software) to simulate the collaborative management of reference data, as well as the use of that reference data for corporate bond issuance. The technology enabled participants to 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.
Reference data requires constant maintenance as reference entity names, counterparties, and securities data change over time. Lack of automation and a reliance on legacy systems and processes currently require each institution to keep its own record of reference data, introducing inconsistencies and requiring resources for reconciliation. New and emerging regulations such as EMIR in Europe and the Dodd-Frank Act in the US have highlighted the need for financial institutions to effectively manage and maintain reference data.
The study of distributed ledger technology's application to reference data is still in its early stages; this exploratory exercise was designed to encourage greater review and analysis of how distributed ledger technology could be used to enhance financial services operations.
SIFMA helped to coordinate testing of the prototype and will continue to work with its members to review the potential application of blockchain technology in reference data.