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lockchain had its first major foray into the
clearing and settlement process with the an-
nouncement last December that the Australian
Securities Exchange (ASX) will replace its legacy
CHESS equity clearing platform with distributed led-
ger technology (DLT) developed by Digital Asset. Full
deployment is set to go live by 2021 but participants
are already taking note.
While Digital Asset’s technology has not yet been
proven to scale, the potential benefits are many. Ac-
cording to ASX, the technology should provide greater
market efficiencies through better record keeping,
reduced reconciliation, more timely transactions and
enhanced data quality.
“The changes ahead will lead to innovation in new
products being available to investors opening up
further offerings and the potential for further offshore
investment into Australia,” says Johann Palychata,
head of blockchain, BNP Paribas Securities Services,
which is an investor in Digital Asset and consulted on
the ASX project.
“This will provide the opportunity to challenge the
inefficiencies in the end-to-end value chain and the
removal of redundant processes making the market a
lot more streamlined, efficient and flexible, especially
in terms of timings and ability to change.”
Palychata believes the project could set off “a wave of
similar projects elsewhere if the promises of the new
technology are confirmed.”
“As DLT solutions move into production, we could
start to see market operators and participants
examining revenue generating opportunities.”
CHRIS CHURCH, CHIEF BUSINESS DEVELOPMENT OFFICER, DIGITAL ASSET
A legitimate claim?
Beyond improving efficiencies—therefore reducing
cost—proponents believe that the implementation of
blockchain could enable central counterparties (CCPs)
to develop new revenue generation opportunities.
“The immediate benefits of DLT to the mitigation
of system risk, and the reduction of costs associated
with the reconciliation process are just the begin-
ning,” says Chris Church, chief business development
officer of Digital Asset. “As DLT solutions move into
production, we could start to see market operators and
participants examining revenue generating opportu-
32 // TheTrade // Summer 2018
nities, such as the creation of new
products and services, which are
only possible because of shortened
trade processing and settlement
times.”
Church says that Digital Asset is
working with several other central
security depositories (CSDs) and
CCPs on deploying more block-
chain projects. It is the “single
source of truth” that blockchain
provides which, he hopes, will
reduce systemic risk. The push to
blockchain is also likely to come
from investors using central clear-
ing houses.
Palychata says institutional
investor interest will grow when
they have analysed how the new
system could allow them to opti-
mise their trading strategies and
funding models, and how they can
interact with exchanges to provide
them with the available data in the
quickest timeframe.
The idea of cost reduction
through an improvement in effi-
ciency makes sense, but it has to
be balanced with considerations of
implementation expenditure.
According to Suresh Kandula,
director of technology at Sapient
Global Markets, the initial costs
of ASX’s DLT implementation are
likely to be significant.
“If I have to compare this to
equivalent North American
platforms and what it would take
to modernise those, it would be
between three to five years and
it could cost up to $150 million,
possibly more,” says Kandula.
“That figure does not include
all the settlement banks, interme-
diary technology platforms and
whole set of ecosystem of vendors
to make changes to their own
platforms, supporting newer in-
terfaces and messaging standards.
For example, as part of this project
ASX is considering ISO2022 along