Digital Asset Innovation at DTCC

INNOVATION AND EXPERIMENTATION AT SCALE — WITH THE INDUSTRY, FOR THE INDUSTRY

Today’s global financial markets are underpinned by a complex network of internal systems and service providers that support the processing of hundreds of millions of financial transactions each day. This amalgamation of internal and external systems may appear disorderly, but as a result of painstaking efforts over the years, they have been integrated to enable the seamless and efficient flow of assets, information and data across markets and regions. While the current system was not created through intentional architecture and design, it provides the necessary stability, reliability and certainty that ensure global markets are efficient, transparent and cost effective.

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The distributed ledger technology (DLT) landscape is filled with fragmentary standards and guidance with respect to DLT-specific security considerations. Although numerous standard setting bodies have published industry-leading security standards and guidance for traditional IT environments the adoption of DLT across the financial services industry remains in its infancy. Organizations are still in the process of navigating the DLT landscape in order to develop standards and guidance for DLT-specific security.

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Markets for the trading of security tokens – tokenized representations of securities that are used to raise capital for various projects and initiatives – and of other “crypto assets” are growing rapidly in the U.S. and globally, creating a need for safe, secure and reliable post-trade processing of these transactions.

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Over the past several years, we have seen tremendous innovation in the development of distributed ledger technology (DLT), along with a dizzying number of use cases that reflect the excitement of banks and other firms to leverage this technology to transform the operations of global financial markets.

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The U.S. financial industry’s clearance and settlement model has evolved to be among the most cost-effective and efficient in the world. Since its creation almost 50 years ago, the mission of The Depository Trust & Clearing Corporation (DTCC) has been to help the industry mitigate risk and reduce cost in clearing and settlement by driving out operational and capital inefficiencies.

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The financial industry is in a constant state of change and the speed and pace of this evolution continues to accelerate. Advancements made in software, communications and encryption technology provide opportunities to construct the single best solution to satisfy an unmet customer need. This technology evolution enables more efficient workflow and communication, in addition to faster and more secure processing.

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In 2019, DTCC began researching the U.S. private markets to evaluate modernization opportunities based on unmet client needs, new technology and DTCC’s ability to provide robust and resilient market infrastructure.

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Capital market infrastructure providers around the world are looking to new technologies to modernize legacy systems and provide the industry access to new offerings. Market participants are looking for solutions to simplify compliance requirements and ease rising capital allocations and liquidity costs. There is evidence that DLT based infrastructures could save the industry billions of dollars a year by simplifying trade confirmations, reconciliation, cash management, asset optimization and other exceptions-based business logic processes. In addition, CBDC could offer a new and alternative payment model that may provide benefits to cash settlement processes in the United States. To further understand the promise and implication of CBDC, DTCC and DDP launched a pilot initiative focused on delivery versus payment (DvP) settlement.

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Financial market infrastructures (FMIs) have been supporting the transformation of the world’s capital markets for decades. Since the dematerialisation of physical securities began in the 1970s, the world’s FMIs have underpinned the evolution of the financial markets by providing scalable, resilient and trusted infrastructures on which the industry can build.

Throughout this journey, The Depository Trust & Clearing Corporation (DTCC), Clearstream and Euroclear have played a pivotal role in helping the world’s capital markets adopt and benefit from transformational technologies. While we operate in different geographies, under different regulatory regimes, the objective of harnessing technology to increase efficiency, liquidity, maintain high degrees of resilience and ensure the safe continuity of financial markets is central to our strategies.

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