Today startup Axoni announced that 15 sell-side and buy-side firms went live on its distributed ledger network for equity swap transactions. The first live trade was between Citi and Goldman Sachs.
The key benefit of the shared ledger is removing the need for reconciliations. Typically each party will record the transaction on their books, and they have to reconcile them with the counterparty. If there are millions of transactions, even automated reconciliation processes will produce numerous discrepancies that would need to be manually investigated. That costs time and hence money.
In the past, the issue was exacerbated because each company had its own way of recording transactions, making reconciliation far harder. In June 2018, the derivatives industry standards body ISDA published a new standard, the common domain model (CDM), and last year it released version two. Critically this wasn’t just about specifying data, but also about standardizing processes. With counterparties talking the same language, they can then share the same ledger.
Barclays hosted two hackathons to get teams familiar with the CDM.
Ian Sloyan, Director, Market Infrastructure and Technology at ISDA said: “Our ongoing work with Axoni will help ensure the system data representation is functional with the ISDA Common Domain Model (CDM) and actively contributes to the continued expansion of equity swap events in the ISDA CDM.”
The standard, and hence Axoni’s process, doesn’t just cover the initial transaction, but also amendments and all steps in the lifecycle of a swap.
“This is a significant milestone which reinforces our commitment to embracing technology to solve real challenges faced by the industry,” said Puneet Singhvi, Head of Financial Market Infrastructure and Lead for Blockchain, DLT and Digital Assets at Citi. “The platform, using smart contracts, will enable significant efficiencies while mitigating risks in post trade processing of equity swaps.”
Both Citi and Goldman Sachs are Axoni investors, as are JP Morgan, HSBC, Wells Fargo, and several venture capital firms. To date, Axoni has raised $57 million.
The company’s technology is a customized version of the Ethereum blockchain. The New York firm previously worked with London-based Clearmatics to enable atomic swaps between two distributed ledgers. This would allow a transaction on one platform to be settled on another, or delivery versus payment.
We previously wrote about Finteum, which is exploring blockchain for intraday FX swaps, which could be settled with Utility Settlement Coins from Fnality.