DTCC and DAH to test blockchain in $2.6 trillion repo market

Anyone who pays attention to blockchain should know that the U.S. clearing and settlement agency DTCC (Depository Trust & Clearing Corp.) is fully exploring blockchain technology. Recently, DTCC has made new moves. This week, DTCC issued a latest statement that it will work with Digital Asset Holdings to test the role of blockchain in the repo market to see if it can improve the operation of this $2.6 trillion repo market.

The DTCC said there was growing liquidity in the short-term lending market, known as repo. The repo market plays a key role in the financial system, moving cash and securities between hedge funds, investment banks and other financial firms.

DTCC is responsible for helping the industry settle transactions in the repo market as part of its job, so it has a responsibility to promote the solution of this problem. DTCC believes that blockchain technology can solve the problem of insufficient liquidity in the repo market, allowing borrowers and lenders to track the circulation of securities and cash in real time.

Repo refers to a transaction in which, when selling securities, an agreement is signed with the buyer of the securities to repurchase the purchased securities at an agreed price after a certain period of time, thereby obtaining immediately available funds. However, during the 2008 financial crisis, the problems in the repo market were highlighted by the bankruptcy of Bear Stearns and Lehman Brothers Holdings.

Now, big banks are shying away from some repo trades because of new regulations that reduce companies’ ability to take on risk.

穆雷·波兹曼特, director and head of clearing services at DTCC, told CNBC that the partnership with Digital Asset Holdings will help the repo market function because blockchain provides a solution for all firms to agree on trade terms more quickly.

Bozemant said that traders currently have to handle the transaction process twice: first, the borrower provides securities in exchange for cash, and then the DTCC settles the transaction. Although the transaction is taking place, it is not yet completed, so the banks involved will bear the transaction risk.

However, the adoption of blockchain technology in the repo market is still in its early stages, and if regulators have concerns or banks are not fully accepting of the concept, they may not fully let go of it. It may also take some time for traders in the repo market to accept this change because they worry that the change process may be cumbersome or may harm their interests.

Still, more and more bankers are beginning to be attracted to blockchain, eager to use it to save costs and meet compliance requirements. Autonomous Research estimates that the use of blockchain will free up $6 billion of the $120 billion in capital tied up between Wall Street firms each year, which can be returned to shareholders or used to support other lucrative business activities.

DTCC executives said they may expand blockchain technology beyond the repo market in the future.

DAH CEO布莱斯·马斯特斯said:

With more and more competitors emerging, such as Symbiont.io, itBit Trust Company LLC, and banks themselves launching new blockchain-based systems internally, working with a large financial institution like DTCC may be a quick way to win the competition.

“It’s much easier to achieve this by working with DTCC than by convincing every participant in the repo market one by one.”

Original article: http://www.wsj.com/articles/bitcoin-technologys-next-big-test-trillion-dollar-repo-market-1459256400
By Katy Burne
Translator: printemps
Editor: printemps
Source (translation): Babbitt Information (http://www.8btc.com/dtcc-dah)