The buzz about blockchain technology is getting louder, and a recent development has everyone talking about the potential to upend the financial services industry.
Goldman Sachs and JPMorgan Chase & Co. just completed a six-month test in the equity swaps market with great results.
Blockchain startup Axoni managed the test, keeping track of the swaps post-execution and recording changes like stock splits and dividends. The test had a 100% success rate. Other participants in the test included the Canada Pension Plan Investment Board, Citigroup, BNP Paribas and Credit Suisse.
Wall Street banks are eyeing the technology eagerly given its potential to reduce back-office costs and speed up clearing and settlement. Since banks have to set capital aside while transactions settle, blockchain could free up significant amounts of capital if trade times could be cut to minutes from days.
In the equity swaps business, participating banks and asset managers become members of a network that shares a distributed ledger. Since each member has an up-to-date copy of the ledge, payments from one counterparty to another can be processed in virtually real time.
No real trades were actually processed during the test, but if the program goes live it will use Fedwire or Swift, most likely.
For more information, please read:
Blockchain Gets a Wall Street Win: `We Know the Thing Works Now’ | Wealth Management