Firms led by JPMorgan test blockchain-powered equity swaps post-trade
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By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - Eight financial services companies led by JPMorgan Chase & Co and Barclays Bank Plc [BARCR.UL] have completed the test of an equity swaps post-trade transaction using blockchain technology and smart contracts, financial technology firm Axoni said in a statement on Tuesday.
The blockchain-powered post-trade prototype was built by Axoni. The other participating institutions are Credit Suisse, Citigroup Inc, financial data and technology provides Thomson Reuters Corp and IHS Markit, as well as business consulting firm Capco.
Thomson Reuters is the parent company of Reuters News.
Blockchain technology powers the digital currency bitcoin and enables data-sharing across a network of individual computers. It has gained worldwide popularity because of its usefulness in recording and keeping track of assets across practically all industries.
Smart contracts, on the other hand, are self-executing transaction agreements.
Greg Schvey, Axoni chief executive, said the blockchain-enabled post-trade processing system could translate into substantial cost savings for the financial companies involved in the transaction.
"The parties run a node that connects them with others on the network," he told Reuters in an interview
Schvey said the current processing of equity swaps could be cumbersome and time-consuming, with each individual dealer having its own internal systems and a single trade going through several such systems. Given the complex nature of equity swaps, trades often break down because of the myriad layers of processing a transaction goes through before being completed, he added.
"What happens now is that with this technology, the parties to the transaction, by virtue of the way blockchains work, are both co-processing and simultaneously running the same code, updating the state of that contracts over time, such that it removes the room for misalignment."
The pilot project started in June. In early September, the participants conducted a diverse set of 133 structured test cases to assess the capabilities of blockchain technology for use with equity derivatives, Axoni said.
"The proof of concept has shown that blockchain technology lends itself well to solving for the operational complexity and volumes of equity swaps lifecycle processing," said Roman Eisenberg, global head, prime services technology, at Credit Suisse.
"This can possibly present an opportunity to not only save costs but also reduce operational risks while growing the client offering," he added.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve Orlofsky)
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