DTCC Picks IBM, Axoni, R3 to Develop Distributed-Ledger Solution for Derivatives Processing

The project aims to develop a distributed-ledger technology (DLT) framework to "re-platform" the DTCC's existing Trade Information Warehouse (TIW), which automates record-keeping, lifecycle events and payment management for approximately $11 trillion of cleared and bilateral credit derivatives.

Chris Childs, CEO of DTCC Deriv/SERV, tells WatersTechnology that the TIW is regarded by the industry as the "gold copy record" of credit default swap (CDS) contracts for around 95 percent of the global market.

"TIW already is a ledger of sorts and the industry is now looking toward new technologies, such as DLT, to see whether further savings and greater efficiencies can be gained," Childs says. "The DTCC, in conjunction with the industry, is looking at putting the TIW onto a distributed ledger to examine whether the technology will deliver what it promises."

Following a successful proof-of-concept (PoC) for North American single-name credit default swaps (CDS) carried out last year, which saw a 100 percent success rate across 85 test cases looking at the capabilities of blockchain and smart contracts, the DTCC has chosen IBM, Axoni and the R3 consortium as its partners to develop the DLT framework.

IBM will act as the lead organization for the project, providing program management, integration services and offering the solution-as-a-service, with Axoni bringing what Childs describes as "a good knowledge of DLT and experience through the proof-of-concept in the CDS market." The R3 consortium will act in an advisory role on the project.

Development of the project will begin in early 2017, building on Axoni's distributed-ledger protocol, which will be submitted to Hyperledger, an open-source collaboration of further cross-industry DLT projects. The DTCC is initially aiming for the new DLT framework to go live in early 2018.

"We estimate around 12 months' worth of development and there will then be some conversion of the positions at that time," Childs says. "We plan on doing some level of parallel work so that we make sure that the DLT is functioning properly in accordance with how the existing application runs before retiring the current TIW. We're assuming probably another six months or so on top of that, so the middle of 2018 seems like a realistic time frame right now, but with projects of this nature it's important to anticipate extended developments and testing."