The Depository Trust & Clearing Corporation (DTCC), the largest clearer of financial securities in the US, announced that it has completed a test of a blockchain-based system for the clearing and settling of repurchase agreements for U.S. government securities and will decide by June whether it will implement the new system.
Repurchase agreements, also known as repos, are a form of short-term borrowing (usually overnight) in government securities. A dealer or other holder of government securities sells them to a lender and agrees to repurchase the securities at an agreed price at an agreed future date. This allows the dealer to raise short-term capital at a cheap rate. The repo market in the US has a daily trading volume of $3 trillion.
The DTCC’s new blockchain-based repo settling and clearing system has been developed in cooperation with New York-based blockchain startup Digital Asset Holdings, which is run by former Wall Street veteran Blythe Masters.
As the initial testing phase is now finished, phase two of the project has been launched during which a stakeholder working group is being formed with active repo market participants to collate feedback about the new system. The DTCC will also determine over the course of the next few months whether the new regime can be integrated into its existing tech infrastructure.
Michael Bodson, President & CEO of DTCC, stated:
“We are very pleased with the results from our repo proof-of-concept effort with Digital Asset, and we see this project as another validation of the potential of this exciting, emerging technology.” He also added that blockchain technology was chosen to build this new system “because of its real-time information-sharing capabilities, enabling all parties to quickly view repo details after trade execution lowering risks and costs while enabling users to take advantage of the benefits of a central counterparty. Digital Asset has been a strong partner in this work, and we are excited to move to Phase Two with them.”
Blythe Masters, CEO of Digital Asset, added, “We are delighted to be working with DTCC towards the first industrial-scale implementation of distributed ledger technology for the $3 trillion per day repo market. As repo volumes continue to grow, Phase Two demonstrates DTCC’s on-going commitment to leveraging DLT for the benefit of their clients, making this one step closer to being a reality.”
This is not the first blockchain-based settlement and clearing system that the DTCC has trialed. In January, it announced that is rebuilding its clearing platform for credit defaults swaps using the distributed ledger technology.
While the blockchain technology is currently being tested in the financial industry for various purposes, the DTCC is one of the few financial institutions that is already actively integrating distributed ledger technology to improve its systems and to reduce inefficiencies in its business.