FMIs issue industry paper on challenges and opportunities addressing constraints of scale and interoperability
New York/London/Hong Kong/Singapore/Sydney, 18 September, 2023 ‒ Today, three of the world’s largest financial market infrastructures (FMIs) – DTCC, Clearstream, and Euroclear – released a paper on the state of the industry’s digital asset evolution. The paper calls for increased collaboration to progress an ecosystem that currently includes fragmented standards, varying regulatory treatment, limited integrations with institutional-grade payment rails and siloed liquidity – all limiting factors to the further digitalization of global financial markets.
While the last several years have seen a growing number of initiatives seeking to establish digital asset-based solutions, the paper suggests that industry-wide transformation will likely slow, unless these challenges are addressed. The paper highlights that two constraints in particular – scale and interoperability – must be addressed as priorities.
Years of smaller deployments have resulted in sub-scale, isolated pools of liquidity on proprietary DLTs, creating obstacles to growth. In 2023, 74% of DLT projects across the capital markets involved fewer than 6 participants. Today’s digital asset initiatives are also highly disparate, with varying standards and propositions related to settlement and custody processes and inconsistent approaches to the supervision and governance of smart contracts and related DLT protocols. These challenges, if unaddressed, will perpetuate a fragmented landscape, and run counter to the very efficiencies of DLT that the industry set out to capture initially.
As FMIs, DTCC, Clearstream and Euroclear bring their expertise in innovation and driving industry transformation to address these challenges. To advance adoption and scale, DTCC, Clearstream and Euroclear pledge to collaborate with the industry, ultimately reducing the costs of connectivity and enabling consistent operating standards across processes, platforms, and digital assets themselves.
Jennifer Peve, Managing Director, Global Head of Strategy & Innovation at DTCC, stated: “We are at an inflection point as an industry when it comes to DLT and digital assets. With digital assets forecasted to grow in value to around $16 trillion over the next 15 years, now is the time to assess what is needed to propel advancement. While we have all accelerated our learnings and identified the benefits of and constraints related to DLT on a smaller scale in recent years, there is broad recognition of the growing need for well-regulated, neutral players to provide trust, resilience and standardized connectivity in their respective ecosystems – the role FMIs like DTCC have played for decades – to drive digital asset adoption.”
Jens Hachmeister, Managing Director, Head of Issuer Services & New Digital Markets at Clearstream, said: “New technologies and digital assets will transform the financial industry. As a neutral financial market infrastructure, we are uniquely placed to help the industry’s transition efforts by modernising infrastructure and driving the adoption of standards across DLT protocols and smart contract language that will lead to better and faster interoperability between ecosystems.”
Philippe Laurensy, Head of Group Strategy, Product Management and Innovation at Euroclear Group, commented: “Financial market infrastructures (FMIs) have a long legacy of supporting technological innovation. Today, the pace of change is consistently accelerating and alongside our partners, we wholeheartedly embrace the promising potential of blockchain and digital assets. FMIs play a pivotal role in helping to unlock the true business value of digital assets through our robust, resilient ecosystem. By providing leading edge analysis with our peers, we can continue to pave the way for further advancements and bring ground-breaking solutions to the market which is aligned to Euroclear’s purpose to innovate to bring safety, efficiency, and connections to financial markets for sustainable economic growth.”
By engaging with traditional and new market participants, DTCC, Clearstream and Euroclear’s unique collaboration will help to advance the digital asset ecosystem by driving and encouraging market dialogue on the required characteristics of DLT networks, data access, privacy and smart contracts, and ultimately enabling greater interoperability, broad adoption of standards, enhanced operational resilience, and a more robust case for change across the industry.
With 50 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry. From 20 locations around the world, DTCC, through its subsidiaries, automates, centralizes, and standardizes the processing of financial transactions, mitigating risk, increasing transparency, enhancing performance and driving efficiency for thousands of broker/dealers, custodian banks and asset managers. Industry owned and governed, the firm innovates purposefully, simplifying the complexities of clearing, settlement, asset servicing, transaction processing, trade reporting and data services across asset classes and bringing increased security, enhanced resilience and soundness to financial markets. In 2022, DTCC’s subsidiaries processed securities transactions valued at U.S. $2.5 quadrillion and its depository subsidiary provided custody and asset servicing for securities issues from over 150 countries and territories valued at U.S. $72 trillion. DTCC’s Global Trade Repository service, through locally registered, licensed, or approved trade repositories, processes more than 17.5 billion messages annually. To learn more, please visit us at www.dtcc.com or connect with us on LinkedIn, X, YouTube, Facebook, and Instagram.
Clearstream is the innovative and trusted post-trade business for the global markets. It runs the leading securities and funds servicing ecosystems of tomorrow. The company operates the German and Luxembourg central securities depositories and an international central securities depository for the Eurobonds market. With 17 trillion Euros in assets under custody, it is one of the world’s largest settlement and custody firms for domestic and international securities. Its digital post-trade platform D7 provides a fully digital alternative to conventional physical issuance and processing of securities. It also delivers premier fund execution, distribution, data and reporting services, covering over 50 fund markets worldwide. Clearstream is part of Deutsche Börse Group, an international exchange organisation and provider of innovative market infrastructures. To learn more, visit us at www.clearstream.com or connect via LinkedIn.
Euroclear group is the financial industry’s trusted provider of post trade services. Guided by its purpose, Euroclear innovates to bring safety, efficiency and connections to financial markets for sustainable economic growth. Euroclear provides settlement and custody of domestic and cross-border securities for bonds, equities and derivatives, and investment funds. As a proven, resilient capital market infrastructure, Euroclear is committed to delivering risk-mitigation, automation and efficiency at scale for its global client franchise. The Euroclear group comprises Euroclear Bank, the International CSD, as well as Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden, Euroclear UK & International and MFEX by Euroclear. To learn more, visit www.euroclear.com.