The Depository Trust & Clearing Corporation (DTCC) has submitted comments to the European Securities & Market Association (ESMA) in response to the discussion paper on blockchain technology issued by ESMA in June.
The discussion paper, titled “The Distributed Ledger Technology Applied to Securities Markets,” highlighted the potential benefits and risks of blockchain and distributed ledger technologies (DLT). ESMA invited comments from market participants and said that the feedback will be used to develop a position on the use of the DLT in securities markets and in particular to assess whether a regulatory response may be needed.
In its comment letter, DTCC said that has been involved in the distributed ledger space for some time now. It has been examining the potential benefits offered by DLT to address certain limitations of the current post-trade process by modernizing, streamlining and simplifying the siloed design of the financial industry infrastructure.
“While the development of DLT for post-trade processing is still in its infancy, the time is right for policymakers to actively engage with the industry regarding potential opportunities,” explained Mark Wetjen, DTCC Managing Director and Head of Global Public Policy. “Regulators globally – such as ESMA – are taking a great interest in DLT and obtaining a better understanding of how the technology might fit within current regulatory frameworks. Collaboration is key - without the support of policymakers and regulators, widespread adoption of DLT will not be possible.”
Emphasizing on the need for industry-wide collaboration, DTCC said that only with such collaboration will the requisite standards and appropriate governance model be developed to harness the potential of DLT while ensuring that important public policy goals continue to be met. In addition, DTCC also highlighted the need for policymakers to understand how securities markets could look in the future through advances in DLT or other technologies, so that the regulatory framework can more readily and appropriately evolve.
DTCC has conducted a number of internal experiments with DLT software and has pursued a proof of concept using the technology, related to credit default swaps. In addition, DTCC is working with blockchain startup Digital Asset Holdings to test a proof of concept to streamline how U.S. government securities repurchase agreements clear and settle.
“DTCC will continue to collaborate with industry stakeholders to explore opportunities to drive innovation in post-trade processing to benefit the industry and the investing community,” said Robert Palatnick, DTCC Managing Director and Chief Technology Architect. “We look forward to engaging with ESMA and joining efforts to identify the practical, operational and institutional effects DLT will have on the financial services industry.”
The comments from DTCC follow Coin Center’s response to ESMA’s discussion paper. Coin Center particularly focused on the agency’s conclusion in the paper that “open” or “permissionless” blockchains may be inappropriate for financial services and urged ESMA to avoid writing-off open technologies.
