Yesterday Daiwa Securities Group announced the completion of a distributed ledger technology (DLT) proof of concept (PoC) conducted with 26 companies for Capital Markets Infrastructure. The Japan Exchange Group which runs the Tokyo Stock Exchange also participated as well the Japan Securities Depository Center. The tests were successful and focused on trade matching and post-trade processing and the next step is to form a consortium.
Trade matching happens after order execution when the buyer and seller reconcile ensuring there are no discrepancies.
By using standardized data and workflow processes on top of distributed ledger technology, the group concluded that there are significant operational cost savings for the entire industry. Those savings should ultimately benefit investors. Additionally, with DLT it should make it easier to introduce new products.
The Daiwa report identifies numerous inconsistencies which standardization and DLT can resolve. DLT was not assumed to be the solution, because each issue was listed and assessed for whether the answer was standardization and/or DLT.
Three general functional steps have been identified. These are data standardization, matching processing, and standardization of calculation logic. There were multiple issues related to communications, but the combination of standardization and DLT should address these.
For example, two types of unit prices are used in trades. There’s the individual price that is the actual trade price as well as the average price. Even though the average price is used by most, some still use the individual price which causes issues. Another example is commission calculations which vary across the industry. While some companies use automated systems, others email transactions using spreadsheets.
As a result, the conclusion was to explore creating a consortium or organization that will run the administration and development of a production system.
The technology used in the tests was not disclosed.
The participants included:
|HSBC Securities||Nomura Securities|
|XNET||Nomura Research Institute|
|OGIS-RI Co., Ltd.||BNP Paribas Securities|
|Okasan Securities||Marusan Securities|
|QUICK Corp||Mizuho Securities|
|Goldman Sachs Japan||Sumitomo Mitsui Asset Management|
|DTCC Japan KK||Sumitomo Mitsui Trust Asset Management|
|Tokai Tokyo Financial Holdings||Sumitomo Mitsui Trust Bank|
|Naito Securities||Mitsubishi UFJ Kokusai Asset Management|
|Nikko Asset Management||Mitsubishi UFJ Morgan Stanley Securities|
|Nissay Asset Management||Merrill Lynch Japan Securities|
|The Master Trust Bank of Japan||Refinitiv (formerly Thomson Reuters)|
|Nomura Asset Management||Daiwa Securities Group|