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Can Blockchain and Distributed Ledger technology Lead Reference Data professionals to the Holy Grail?
Financial industry professionals having specific roles focused on administering reference data are typically found in a cubicle staring at a computer and managing the logistics involved with parsing, curating and tagging the various codes and acronyms associated with each financial instrument that is passing through a trading, clearing or back office platform. The ubiquitous reference data codes include among others, CUSIP, ISIN, SEDOL and to a lesser extent, ticker symbols. Every financial instrument has at least 2, if not three discrete identifers, and descriptive data fields for a typical debt instrument can include upwards of 30 fields of data. Managing, maintaining and correcting databases and securities masterfiles so that reference data elements are consistent is akin to navigating a rat’s nest, particularly when a particular institution is maintaining multiple internal systems that in turn connect to multiple external platforms, including regulatory, compliance and trade settlement portals.
Suffice to suggest, a global standard protocol that can mitigate drop-copying and maintain most current information relating to nearly 15 million financial instruments that are ISIN code certified (and/or the nearly as many instruments that are CUSIP code certified) and can be accessed on a secure basis is the Holy Grail. R3 Technologies, one of the leading fintech companies specializing in blockchain and distributed ledger applications for the financial industry believe they have a blue print to solve a global challenge…
WSJ-21 September 2016–In the latest blockchain experiment carried out under the R3 banner, major banks including Citi and HSBC are looking into how distributed ledger technology can be used to simplify reference data processes.
Reference data is a major pain point for financial firms, which suffer from a lack of automation and a reliance on legacy systems, meaning that they each have their own records, with inevitable and costly inconsistencies that need to be reconciled.
Working with R3 and capital markets tech startup Axoni, seven buy-side and sell-side firms have completed a multi-month proof-of-concept exercise, coordinated by Credit Suisse, which aimed to tackle these problems through a distributed ledger prototype.
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The prototype was created using Axoni’s proprietary distributed ledger software to simulate the collaborative management of reference data, as well as the use of that data for corporate bond issuance. Participants could interact with reference data after issuance, with any proposed changes requiring validation by the underwriter to ensure the ledger provided a single, immutable record of all data related to the bond.The partners say that their prototype shows how blockchain technology can be used to allow regulators and network participants to view in real time which parties on the ledger have created, issued and proposed amendments to the data record.
Emmanuel Aidoo, head, distributed ledger, Credit Suisse, says: “Using Blockchain and Distributed Ledger Technology as a shared reference data backbone for the industry makes intuitive sense. Our vision is to demonstrate how distributed ledgers applicability can go beyond settlement and help reduce duplicate reference data costs and improve data latency which will ultimately lower costs and reduce operational risks.”
David Rutter, CEO, R3, adds: “Quality of data has become a crucial issue for financial institutions in today’s markets. Unfortunately, their middle and back offices rely on legacy systems and processes – often manual – to manage and repair unclear, inaccurate reference data.
“Distributed ledger technology – which allows financial institutions to push these functions to a cloud environment – removes the need to reconcile multiple copies of data, providing a sophisticated and agile solution to the headaches currently caused by these legacy systems and processes.”
For those managing bulky database applications that require real-time accuracy for managing ISIN, CUSIP, SEDOL and host of other reference data elements, R3 may be on the right path, or competing firm Symbiont.io might pull a rabbit out its own hat.