Seven buy-side and sell side firms, including AB (Alliance Bernstein), Citi, Credit Suisse and HSBC, announced Monday that they have collaborated with financial innovation companies R3 and Axoni to explore how blockchain technology could simplify reference data processes.
Reference data makes up 40% to 70% of the data used in financial transactions and includes information such as financial product specification, issuer detail, counterparty information, currencies, corporate actions and prices.
New and emerging regulations such as EMIR in Europe and the Dodd-Frank Act in the US have highlighted the need for financial institutions to effectively manage and maintain reference data.
Reference data requires constant maintenance as reference entity names, counterparties, and securities data change over time. Lack of automation and a reliance on legacy systems and processes currently require each institution to keep its own record of reference data, introducing inconsistencies and requiring resources for reconciliation, said R3 in a press release.
The group, working with R3 and Axoni through the Securities Industry and Financial Markets Association (SIFMA), recently completed a multi-month proof of concept (PoC) exercise, coordinated by Credit Suisse, that aimed to build a distributed ledger prototype that can enhance the risk management, cost and efficiency issues inherent in managing financial reference data.
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, said R3.
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 collaborative prototype demonstrated the potential application of distributed ledger technology as an agile solution which could provide the capability for regulators and network participants to view in real time which parties on the ledger have created, issued and proposed amendments to the data record.
“Using Blockchain and Distributed Ledger Technology as a shared reference data backbone for the industry makes intuitive sense. Our vision is to demonstrate how distributed ledgers applicability can go beyond settlement and help reduce duplicate reference data costs and improve data latency which will ultimate lower costs and reduce operational risks,” said Emmanuel Aidoo, who heads the Distributed Ledger and Blockchain effort at Credit Suisse, in a prepared statement.