For proponents of distributed ledger technology, adoption should be like a slow burn: it’s not destroying everything in its path, but slowly and surely, it’s spreading across the financial markets. That’s at least how Broadridge’s Horacio Barakat thinks of the much-hyped, much-maligned tool.

“It has the potential to provide a step change improvement for capital markets,” he says. Broadridge’s new DLT-based repo platform is a representation of that philosophy.

Broadridge launched the offering in June, building on its embrace of the emerging technology. The platform utilizes DAML smart contracts through Digital Asset to simplify the complex multiparty workflows in the repo market. It also uses the VMWare Enterprise blockchain platform to provide the underlying cryptographically-secure distributed ledger network.

The company—which has also worked on DLT projects in the private equity and proxy voting spaces—had completed multiple pilots of the platform with buy- and sell-side firms prior to its launch to identify pain points and what potential users would want out of the platform. Barakat, head of digital innovation in capital markets and head of Broadridge’s DLT repo platform, says blockchains simplify complex workflows with multiple counterparties, so at their core, they help improve the availability and mobility of collateral, operationally-intensive matching, and reconciling data throughout the trade lifecycle. While the pilots have included the likes of Natixis and Societe Generale, Broadridge did not provide metrics around how DLT can improve those pain points.

Barakat says the blockchain-enabled platform was designed in a way that doesn’t significantly disrupt the existing technology stack.

“By inserting this distributed ledger platform, we are not changing the front-office systems that the traders use,” he says, “and we are not changing the back-office setup where books and records are logged and where profit-and-loss and compliance happen.”

By maintaining and not touching those two critical sections of technology, Barakat believes the risk of adoption and implementation are lowered. “It is a platform that digitizes the entire repo workflow from repo contract to settlement activity by digitizing collateral. For the platform to achieve these goals, its optimal place in the tech stack is in between the front office and the back office to be able to affect processes related to trading and settlement.”

In the first week since launch, the DLT repo platform executed $31 billion in its average daily volume with two entities onboarded and more lined up throughout the summer. As to how much he hopes is executed on the platform in a year’s time, Barakat declined to provide a projection.

Vinod Jain, a senior analyst at Aite Group, believes Broadridge is moving in the right direction on blockchain technology.

“This platform proves that the technology has been provided where the business problem is and it gets applied to that specific business problem, rather than on a massive scale,” he says. “If you wanted cash today, as a repo transaction, to put your collateral you would have to wait two days. If you do the transaction today, you would get your cash tomorrow or the day after. If you do it on DLT, you would be able to get your cash today.”

Skeptics

The technology does have its skeptics. Bank of America’s chief operations and technology officer Cathy Bessant told CNBC in 2019 that she was “bearish” on blockchain—despite the fact that the company has been the most active financial institution when it comes to filing patents. “I haven’t seen one [use case] that even scales beyond an individual or a small set of transactions,” Bessant said. “All of the big tech companies will come and say ‘blockchain, blockchain, blockchain.’ I say, ‘Show me the use case. You bring me the use case and I’ll try it.’”

Nasdaq president Adena Freidman remarked at Hong Kong FinTech Week 2020 that the potential for blockchain technology to disrupt the exchange market is a “bit of an overstatement”.

“There are a lot of practicalities to implementing blockchain that make it a long-term evolution [rather than a short-term disruption],” she said.

And Bill Murphy, who served as Blackstone’s CTO from 2011 to March 2020, and who now is a managing partner at Cresting Wave, told WatersTechnology that it was “a solution searching for a problem—I think we will continue to see lots of noise, but no real results from blockchain.”

Believers

Barakat agrees that there is something of a “hammer-and-nail” problem facing the DLT market, which is why Broadridge is only looking to solve for very specific use cases and areas of the financial market that could be improved fairly quickly.

“Many of the projects around DLT involve large transformations, changing a lot of processes, tackling broad asset classes and broad use cases that are difficult to implement. Some of them can feel like boiling the ocean,” he says.  

For Barakat, he says that it takes about two-to-three years of building and implementing before a DLT project can start to provide an ROI. “We could probably get to big bang savings, but you need to work yourself up one step at a time.”

Repo is not the only part of Broadridge’s overall blockchain strategy. In 2019, Northern Trust transferred its private equity blockchain to Broadridge for further development, which went live as Private Market Hub in 2020. Its most recent version now uses Amazon Managed Blockchain from Amazon Web Services.

Eric Bernstein, president of Broadridge’s asset management solutions, says the goal of Private Market Hub is to create an ecosystem where participants can have a common source of data.

“Private equity continues to be a fast-growing market, and inefficient in the collection and dissemination of data and information,” he says. “Using blockchain, our participants gain a single source of information that is immutable and accessible, thus allowing for a much more transparent and speedy process to improve the inefficiencies that exist today.”

Jain sees various models of blockchain coming into the industry as proof that the technology is taking a more prominent role in the capital markets. For example, he points to the project currently underway at the Australian Securities Exchange. In 2017, ASX announced it was going to replace Chess—which stands for Clearing House Electronic Subregister System, and serves as its equity clearing and settlement platform—with a blockchain platform developed by Digital Asset Holdings. While the project has experienced several delays along the way and is now slated to go live in April 2023, Jain believes that the size of the project for a critical piece of trading technology shows the maturity of DLT.

He also pointed to what blockchain vendor Symbiont has developed—Symbiont Assembly, an enterprise blockchain-based platform—and what the Depository Trust & Clearing Corporation has developed with Project Ion and Project Whitney as signs that DLT is making headway. 

“Everybody is looking at different perspectives and different models,” Jain says. “At the end of it, everything is revolving around the faster movement of securities and cash.”

And it’s clear that Broadridge will remain a proponent of blockchain.

“Hopefully five years from now, the distributed ledger platform becomes a misnomer,” Barakat says. “The way we need to think about it is building on a platform that solves for specific and meaningful pain points and then start expanding towards adjacencies.”