The TRADE 56 - Page 32

[ I N - D E P T H | B L O C K C H A I N ] B lockchain had its first major foray into the clearing and settlement process with the an- nouncement last December that the Australian Securities Exchange (ASX) will replace its legacy CHESS equity clearing platform with distributed led- ger technology (DLT) developed by Digital Asset. Full deployment is set to go live by 2021 but participants are already taking note. While Digital Asset’s technology has not yet been proven to scale, the potential benefits are many. Ac- cording to ASX, the technology should provide greater market efficiencies through better record keeping, reduced reconciliation, more timely transactions and enhanced data quality. “The changes ahead will lead to innovation in new products being available to investors opening up further offerings and the potential for further offshore investment into Australia,” says Johann Palychata, head of blockchain, BNP Paribas Securities Services, which is an investor in Digital Asset and consulted on the ASX project. “This will provide the opportunity to challenge the inefficiencies in the end-to-end value chain and the removal of redundant processes making the market a lot more streamlined, efficient and flexible, especially in terms of timings and ability to change.” Palychata believes the project could set off “a wave of similar projects elsewhere if the promises of the new technology are confirmed.” “As DLT solutions move into production, we could start to see market operators and participants examining revenue generating opportunities.” CHRIS CHURCH, CHIEF BUSINESS DEVELOPMENT OFFICER, DIGITAL ASSET A legitimate claim? Beyond improving efficiencies—therefore reducing cost—proponents believe that the implementation of blockchain could enable central counterparties (CCPs) to develop new revenue generation opportunities. “The immediate benefits of DLT to the mitigation of system risk, and the reduction of costs associated with the reconciliation process are just the begin- ning,” says Chris Church, chief business development officer of Digital Asset. “As DLT solutions move into production, we could start to see market operators and participants examining revenue generating opportu- 32 // TheTrade // Summer 2018 nities, such as the creation of new products and services, which are only possible because of shortened trade processing and settlement times.” Church says that Digital Asset is working with several other central security depositories (CSDs) and CCPs on deploying more block- chain projects. It is the “single source of truth” that blockchain provides which, he hopes, will reduce systemic risk. The push to blockchain is also likely to come from investors using central clear- ing houses. Palychata says institutional investor interest will grow when they have analysed how the new system could allow them to opti- mise their trading strategies and funding models, and how they can interact with exchanges to provide them with the available data in the quickest timeframe. The idea of cost reduction through an improvement in effi- ciency makes sense, but it has to be balanced with considerations of implementation expenditure. According to Suresh Kandula, director of technology at Sapient Global Markets, the initial costs of ASX’s DLT implementation are likely to be significant. “If I have to compare this to equivalent North American platforms and what it would take to modernise those, it would be between three to five years and it could cost up to $150 million, possibly more,” says Kandula. “That figure does not include all the settlement banks, interme- diary technology platforms and whole set of ecosystem of vendors to make changes to their own platforms, supporting newer in- terfaces and messaging standards. For example, as part of this project ASX is considering ISO2022 along