IBM, Barclays, Synswap point to blockchain banking transformation

Credit default swaps and other derivatives could be among markets ripe for change

By Michael McCaw | 16 April 2018

Capital and securities markets are among the banking sectors that could most enjoy the benefits of blockchain technology, according to speakers at a bobsguide webinar.

Keith Bear, global leader for financial markets at IBM, Dr Lee Braine, blockchain leader at Barclays, and Sophia Grami, CEO and co-founder of Synswap considered the use cases and weighed up just how transformational the technology could be within financial services.

The speakers agreed that taking existing processes and making them more efficient without disrupting systems too much would be key to blockchain adoption. Further, being able to display cost savings would be crucial to industry take up.

However, there are direct transformational changes ongoing within the investment banking world. IBM’s Bear pointed to work the tech giant, Barclays and others are doing with clearing and settlement house DTCC on replacing the trade information warehouse as an example of how changes are happening fast within the trading world.

“In some respects this is transformational – it’s taking an existing process and database and replacing it with a distributed ledger technology approach to matching credit default swaps,” he said. “It’s disruptive in a positive way in a sense that it enables the banks to have a golden source of data on the status of their credit default swaps in terms of all their trading transaction with their peers. And for the DTCC it enables quite a significant simplification around the information for each institution. So perhaps not really disruption compared to disintermediation for the DTCC, but certainly in terms of the savings and the improvements in terms of risk and cost effectiveness that will come as a result of that.”

The technology is pulling banks together, and market participants are adamant that distributed ledgers, smart contracts and blockchain will change the industry. As part of the webinar, the audience was asked how impactful blockchain will be on financial services generally: 22.4% said there will be extreme impacts, 58.3% said there would be significant changes, and just 17.9% said there would be some changes. The remaining 1.4% said there would be no impact.

Barclays’ Braine pointed to the fact that the bank had only been in the blockchain space for three years, not unlike many financial institutions. The bank has worked with a number of fintech outfits and built its own innovation hubs, such as the Barclays Accelerator, in order to pursuer use cases of the technology.

“We’ve had a lot of experience working out and looking into uses of the technology by partnering with these start-ups,” he said.

The bank has been exploring a number of different ways in which it can exploit blockchain technology to the limit of its abilities. Examples include a trial in which Barclays has used it to carry out the end-to-end lifecycle of derivatives trading using smart contracts.

There have been suggestions that one of the hurdles to blockchain implementation is just how far and wide it can be taken up. With any new technology, it takes a certain volume of market participants to actually start using it before it can reach its full potential. That principle is especially pertinent to blockchain and distributed ledger technology, as smart contracts and data management require counterparts to act on the same platforms. Braine said Barclays is acting as an advocate of the technology, and attempting to get everyone considering a similar approach.

“We defined a strategy across the investment bank and the corporate bank in which we looked at the principles and design preferences within the blockchain space,” he said during the webinar. “We’ve come up with those principles – which we’ve consistently applied. We shared those with regulators, central banks and also in public forums in which we’ve outlined options and pointed to our preferences. We also experiment quite a lot with other banks, and the results go out publically.”

There has also been a range of wider industry initiatives that have driven the debate around the technology. Isda’s Common Domain Model (CDM), which has a goal of producing widely held industry processes and data structures upon which distributed ledgers and smart contracts can run, is a perfect example of the derivatives industry is taking the technology seriously.

“Without a common standard we’re not able to progress,” said Braine. “Because there are many institutions contributing to this.”

The capital markets and payments industries could see processes overhauled by blockchain technology, said Synswap’s Grami.

“Basically every time there’s an intermediary sitting in the middle of a process, or in the middle of two entities, it is possible to remove that third party by leveraging blockchain technology,” she said.

Listen or download the full podcast below.



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