After years of hoopla, applications of blockchain/distributed ledger technology (DLT) for securities processing are beginning to show results, which are getting the spotlight at SWIFT’s SIBOS conference in Toronto.
Blockchain/distributed ledger technology (DLT) is taking the spotlight at the SIBOS conference in Toronto this week, put on by the financial messaging services and systems cooperative SWIFT.
SWIFT itself has a preliminary report on its DLT efforts while vendors R3 and Calypso Technology announced a DLT pilot for BBVA and BBVA Bancomer, and BNP Paribas Securities Services and Tata Consultancy Services want to reinvent corporate actions processing via blockchain/DLT.
Underway this week, SIBOS will feature major presentations for key aspects of the financial services industry, including key securities processing operations. In addition, top software, systems and service providers for the industry are using the SIBOS gathering to make major announcements.
In time for SIBOS, SWIFT has issued what it describes an interim report on the proof of concept (PoC) for real-time Nostro reconciliation via a SWIFT-oriented DLT “sandbox with 33 global transaction banks, as part of its SWIFT gpi [global payment innovation] service.”
The SWIFT PoC was created to find out if DLT can serve as new way for banks to reconcile Nostro accounts “more efficiently and in real-time, while lowering costs and operational risk,” officials say. However, earlier this year, SWIFT officials acknowledged to FTF News that all results from this DLT effort would be put toward advancing securities processing.
The report provides an overview of the PoC effort such as technical objectives, early findings on the potential business benefits, as well as key challenges that still need to be addressed to achieve industry-wide adoption.
Officials say the preliminary results show:
- the SWIFT-developed DLT application can o support real-time liquidity monitoring and reconciliation;
- The application can provide real-time visibility to “both the account owner and its servicer on the available and forecasted liquidity on the Nostro account;”
- And support for payment reconciliation and investigations via a data model based upon the ISO 20022 standard.
“SWIFT’s DLT sandbox also demonstrated progress in DLT technology and helped identify issues that still need to be addressed to achieve industry-wide adoption,” according to SWIFT. “Specific challenges include the need to develop unique value propositions in response to the different levels of sophistication, automation and past investments of banks. In addition, it is crucial that integration with legacy back office applications and co-existence with existing processes is taken into account.”
The early results “are positive for this use case,” says Damien Vanderveken, head of research and development, SWIFTLab and User Experience at SWIFT. “Significant progress has been made, but it is still early days for the latest generation of Blockchain technology, and it will take time before it is mature and scalable enough for mission critical applications.”
The SWIFT DLT PoC began in April of this year and is slated to end by November 2017 “with the final results available in December,” officials say.
DLT Pilot for BBVA & BBVA Bancomer
Mexican financial services firms BBVA and BBVA Bancomer have begun a pilot of a foreign exchange (FX) matching application co-developed by Calypso Technology, a vendor of cloud-based cross-asset trading software solutions, and distributed ledger technology vendor R3, officials say.
BBVA and Bancomer agreed to the pilot as “part of their larger initiative to apply distributed ledger technology [DLT] to their FX businesses to reduce total cost ownership, simplify operations and enhance overall efficiency,” officials add.
The effort targets the communication struggles experienced by financial institutions that cause errors in the matching process. “Fixing these errors requires manual intervention, which has significant cost and resourcing implications,” officials add.
The application runs on R3’s Corda platform and “is facilitated by Calypso’s Cloud Services,” officials say. The two banks have already used the application to match a live FX transaction.
The pilot follows a proof-of-concept effort earlier this year, and was developed by BBVA, R3 and Calypso in a bid to “enable seamless, real-time FX confirmation matching between banks and their counterparties, providing an alternative to the slow and costly systems and processes used for FX trade matching today,” officials say.
“BBVA is very excited about this initiative for two reasons,” says Ramon Martinez Sobrado, global head of CIB operations at BBVA, in a prepared statement. “Firstly, it gives us the opportunity to assess the impact of a disruptive technology such as DLT, to generate efficiencies in one of our strategic business lines. Secondly, it has the potential to set a new standard in customer experience on the servicing ground.”
Calypso foresees DLT “as an important component of our innovative offerings to transform post-trade processing operations,” says Mayank Shah, head of strategy, marketing and alliances at Calypso. “We are excited that after successful completion of the initial PoC, BBVA, BBVA Bancomer and our strategic blockchain partner R3, have engaged in the next phase of Calypso FX Matching Distributed Ledger Technology service supported by our Cloud services,” Shah says.
The pilot tackles the reconciliation issue banks face when trading FX, “with whole departments often dedicated to resolving the issues that occur during the matching process,” says Todd McDonald, co-founder at R3, in a prepared statement. “Corda removes this issue entirely by creating a single, undisputable record of each trade.” McDonald says the R3 is “extending the initiative to other industry participants in the coming weeks.”
DLT for Corporate Actions Processing
BNP Paribas Securities Services and Tata Consultancy Services have been collaborating reinvent corporate actions processing via blockchain/DLT technologies, officials from both companies have announced at the SIBOS conference.
In fact, TCS and BNP Paribas had a presentation Monday, Oct. 16, at SIBOS, about their collaboration, Corporate Event Connect, officials say. In particular, the forthcoming DLT-based platform is intended to “provide fast, accurate and secure corporate event announcements to clients around the world,” officials say. The combined effort is intended to mitigate inefficiencies and errors.
For now, Corporate Event Connect is in its beta version stage and is slated to be “rolled out in different phases,” officials say. The platform is part of BNP Paribas Securities Services’ Augmented Custody program, which was launched in June 2016 to develop and enhance the custody services of the BNP Paribas subsidiary.
“We have a longstanding relationship with TCS, having begun using their BaNCS platform in 2010,” a spokesperson for BNP Paribas Securities Services tells FTF News. “We have been working together for more than 15 years, and specifically on the blockchain initiative for more than eight months.”
BNP Paribas Securities Services officials say that the Corporate Event Connect initiative will offer the following benefits:
- Speed of information: Information is communicated in real time along the network;
- Accuracy: There will be a golden copy, “scrubbed and certified by BNP Paribas Securities Services, Custodian present in 27 locations;”
- Efficiencies: There is a single set of information for one corporate event present in the network, and this avoids the risk of duplication or incorrect information. There is also support for conveying information in several messages, and the BNP Paribas Securities Services network features a translation tool that exploits deep machine learning technology to “translate information in seven languages, including five main European and two Asian languages,” officials add.
- Technology Agnostic: Information will available in multiple formats and firms can connect to the BNP Paribas Securities Services network through multiple ways such as Apple’s IPad, application programming interfaces (APIs) and SWIFT;
- And on-demand support: This will help clients clarify situations as the corporate actions information provided is not necessarily linked to the position clients are holding.
“By leveraging TCS’ Quartz blockchain technology, BNP Paribas will be able to capture and store corporate action information in a structured format to ensure data accuracy and rapid dissemination to clients. The platform’s built-in security will ensure the information is tamper-proof, resistant to node failure and recoverable,” according to officials from both companies.
For instance, asset servicing information, including news about mergers and acquisitions and dividend payments, “will be collected through TCS BaNCS for Corporate Actions from more than 90 markets, including 27 local official sources in BNP Paribas’ proprietary network,” officials add.
“Managing and disseminating corporate event information in an accurate and timely fashion has long been a pain point for the custody industry and we are delighted to be working with TCS on this project,” says Philippe Ruault, head of digital transformation at BNP Paribas Securities Services, in a prepared statement.
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