Financial innovation companies R3 and Axoni, in collaboration with other buy-side and sell-side financial services firms, have recently completed a multi-month proof of concept (PoC) exercise, which aimed to build a distributed ledger prototype that can enhance the risk management, cost and efficiency issues inherent in managing financial reference data.
AB (Alliance Bernstein), Citi, Credit Suisse and HSBC, collaborated with R3 and Axoni to explore how blockchain technology could simplify reference data processes. The group is worked with R3 and Axoni through the Securities Industry and Financial Markets Association (SIFMA) and the PoC exercise was coordinated by Credit Suisse.
Reference data is a significant part of the data used in financial transactions and includes information such as financial product specification, issuer detail, counterparty information, currencies, corporate actions and prices. It requires constant maintenance as data changes over time and current lack of automation and a reliance on legacy systems and processes result in inconsistencies.
The prototype was created using Axoni Core (Axoni’s proprietary distributed ledger software) to simulate the collaborative management of reference data, as well as the use of that reference data for corporate bond issuance. The technology enabled participants to interact with reference data after issuance, with any proposed changes requiring validation by the underwriter to ensure the ledger provided a single, immutable record of all data related to the bond, the release said.
The collaborative prototype demonstrated that the application of distributed ledger technology could enable regulators and network participants to view in real time which parties on the ledger have created, issued and proposed amendments to the data record. Moreover, it also showed that the technology facilitated ongoing, automated data distribution across all participants, along with providing a model to manage conflicting data.
“This project demonstrates distributed ledger technology’s value in financial markets beyond commonly-discussed use cases such as trade settlement and cash movement. A reliable, distributed, synchronized reference data store will eliminate vast amounts of expensive, replicated infrastructure and workflows across industry participants”, Thomas Chippas, COO of Axoni, said.
The study of distributed ledger technology’s application to reference data is still in its early stages. According to the official release, SIFMA helped to coordinate testing of the prototype and will continue to work with its members to review the potential application of blockchain technology in reference data.
