The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, and blockchain startup Digital Asset Holdings, have signed an agreement to develop proof of concept to improve the current U.S. repurchase agreement clearing process. 

Under the agreement, the firms will develop and test a distributed ledger based solution to manage the clearing and settlement of U.S. Treasury, Agency, and Agency Mortgage-Backed repurchase agreement (repo) transactions.

Mike Bodson, President & CEO of DTCC, said, “Distributed ledger technology has the potential to revolutionize certain post-trade processes that are inefficient and complex, and repos are a great place to start. There are absolute opportunities to make clearing in this area much more efficient, and we look forward to working with Digital Asset on this exciting project.”

The firms aim to lower risk and capital requirements for the repo market by enabling DTCC’s Fixed Income Clearing Corporation (FICC) to become the settlement counterparty for repo transactions in real-time. This in turn would enable additional netting and offsets, which currently takes place in multiple steps.

Distributed ledger technology, with its real-time information sharing capabilities, will enable all parties to the repo trade to view details almost immediately after the trade is executed. This will enable buy- and sell-side firms to agree to repo trade details much more quickly, reducing risks and costs.

“This collaboration further demonstrates Digital Asset’s commitment to enhancing post-trade processes for financial market infrastructure providers and market participants,” said Blythe Masters, CEO of Digital Asset. “DTCC has an important role to play in the integration of a distributed ledger ecosystem with the existing financial landscape and this joint effort will accelerate innovation while decreasing cost and risk for our clients.”

The first phase of the project will start immediately and will focus on developing a proof-of-concept and integrating it into the DTCC environment. Future phases will include collaboration and testing with market participants to ensure the solution meets industry needs.

DTCC has made a financial investment in Digital Asset Holdings and has also joined the Linux Foundation, a nonprofit organization enabling mass innovation through open source, to support a new venture known as the Hyperledger project, a collaborative effort to advance the Blockchain technology.