The Depository Trust & Clearing Corp. and Digital Asset Holdings are targeting the repurchase agreement market as the latest use case for a blockchain solution.
DTCC, a post-trade financial services company, plans to test a distributed ledger for managing repo transactions using software developed by Digital Asset. The New York-based blockchain startup uses distributed ledgers to track and settle digital and mainstream financial assets. Such ledgers are intended to reduce counterparty risk and transaction settlement times.
Mortgage-backed repurchase agreements are one type of financial transaction for which DTCC can reduce risk and capital requirements through the use of a blockchain, the company said in a press release on Tuesday.
"Distributed ledger technology has the potential to revolutionize certain post-trade processes that are inefficient and complex, and repos are a great place to start," Mike Bodson, DTCC president and chief executive, said in the release. "This initiative reflects our strong commitment to leverage this technology and help lead the industry to further lower risk and increase efficiency across financial markets."
Bodson also sits on Digital Asset's board.
Although repo trades often happen in real time, what happens after the trade — the settlement, clearing and netting processes — is more complex and is executed in several steps.
If the proof-of-concept is successful, the DTCC's Fixed Income Clearing Corporation would become the counterparty for repo transactions in real-time and allow additional netting and offsets. Currently, it matches and verifies the initial "start leg" of a repo, but not of same-day starting trades, and runs the risk of the repo settling outside the FICC.