US post-trade giant DTCC and Digital Asset, the blockchain firm run by former JP Morgan executive Blythe Masters, have used distributed ledger technology to manage the netting process for repo trades.
Both firms announced the successful completion a proof-of-concept on Monday and will collect feedback from market participants active in the $3trn per day US repo space over the coming months.
Repo trades, forms of short-term borrowing for dealers in government securities, often occur in real time, with the settlement, clearing and netting processes happening in multiple steps.
DTCC has provided netting services for US Treasury and agency repos since the mid-90s by combining two or more obligations to reduce credit and settlement risks.
However, only the “close” leg (the subsequent repurchase) of same-day settling repos is netted and settled by DTCC’s Fixed Income Clearing Corporation (FICC).
DTCC and Digital Asset claim to have demonstrated successful netting of “start” leg repo trades (the portion of the repo transaction when the security is sold) using blockchain.
This would allow DTCC to calculate a new net settlement amount at a point in time and record it in an set, secure and transparent distributed ledger.
Phase 2 of the overall project, which involves creating a working group and collecting feedback, is expected to be completed by June this year.
DTCC will then decide whether to move ahead with the development phase.
Any changes to FICC’s repo processing rules are subject to regulatory approval.
Last month DTCC said it had partnered with IBM and two other blockchain startups, Axoni and R3, to rebuild its platform that processes credit default swaps.
Digital Asset, led by Blythe Masters, is involved in multiple blockchain projects and has raised more than $60m from a group of financial institutions including DTCC, Goldman Sachs and CME.
The New York-based tech firm currently has a contract to replace the clearing and settlement systems of Australian bourse ASX with its blockchain based software.