Yesterday securities finance firm Pirum said it successfully tested a distributed ledger technology (DLT) extension for its securities lending and repo solutions. Pirum provides post trade automation services, processing two million contracts worth $3.5 trillion daily. The UK arm of the company had revenues of £29 million ($36m) last year, with profits of £8 million ($10m).
The overall takeaway is that Pirum is not keen on DLT, with two exceptions. It’s happy to integrate with DLTs used by clients. And it sees benefits for tokenized assets. But not so much for conventional stock lending and repo.
The goal of the trials was to provide a golden record of trades. It ran various client and fintech working groups to debate the pros and cons of using DLT.
Pirum struggles to see comparative DLT benefits
Given that Pirum already has solutions to address some of the pain points that DLT targets, it’s not surprising that it had some reservations. For example, some of its features automate the reconciliation process, whereas DLT aims to remove the need for reconciliations.
Pirum stated that its existing real time post trade services achieve straight through processing for 95% of trades, rising to 99.8% “once the full suite of services across vendors are rolled out and adopted.” It claims that only 87% of transactions or lifecycle events would reach the DLT because of mismatches requiring human intervention.
However, usually the idea is not to use DLT in isolation but to combine it with automation solutions, including smart contracts that might address mismatches. And only then create the golden record.
That said, from a business perspective, it’s only worth investing in a new technology if it will deliver marginal benefits over and above the costs. Hence, Pirum’s position makes commercial sense.
Pirum focused on the challenges of DLT, highlighting coordination, cost and risk management issues as well as performance at a functional level.
Given that Pirum connects to various industry solutions, it sees a need to integrate with industry DLT systems covering collateral, payments and settlement. For its own trials, it tested Enterprise Ethereum.
It aims to provide customers with the “optionality” to interact with DLTs – “without being wholly reliant on them”.
Pirum concedes DLT benefits tokenized assets
The one exception was tokenized assets, where Pirum believes the adoption benefits are clearer. It’s also interested in exploring DLT for standard settlement instruction management.
Meanwhile, EquiLend takes a different view from Pirum and sees benefits in adopting DLT, particularly for creating a golden record of securities lending changes and updates such as new rates. It is also interested in DLT for standard settlement instructions (SSI). EquiLend uses Digital Asset’s DAML Canton and is currently in pilot mode. For SSI, it is integrating with SSimple which uses R3’s Corda enterprise blockchain. Pirum might need to integrate with HQLAᵡ for collateral management, which also uses Corda.