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Financial Repurchase Market Eyes Blockchain Applications

Blockchain applications have the potential to unlock many opportunities, both in the financial industry and beyond. In a sign that this technology is becoming more prevalent, blockchain could soon be used in the repurchase market, which enables financial institutions to sell securities that they agree to repurchase at a later date in exchange for short-term loans.

According to Fast Company, the Depository Trust and Clearing Corp. (DTCC), which tracks ownership of stocks and other securities, is working with financial blockchain firm Digital Asset to develop a digital ledger that would include all the reference data for these transactions, which involve the $2 trillion market of short-term loans.

Such a digital ledger would be very similar to the system behind blockchain transactions and would provide several efficiencies, including shorter time to settle, reduced transactions and a reduction in the amount of securities needed for outstanding collateral for the loans. Although repurchase market transactions typically settle within the same day, settlement time could now be cut to seconds, with even more of an impact on slower-to-settle markets.

DTCC and Digital Asset hope to develop a working prototype for their settlement solution by the end of the summer, with a more extensive rollout planned for 2017. The partnership, if finalized, would be the second for Digital Asset, which is also testing the use of blockchain technology with the Australian Securities Exchange.

Other Uses in the Financial Industry

DTCC is also moving forward with other blockchain applications. According to Ars Technica, DTCC, four large banks and a couple of technology companies recently tested blockchain technology for credit default swaps. The swaps represent the debt of one bank purchased by another, with an understanding that the selling bank will compensate the purchasing bank if the creditor defaults. A blockchain ledger would make credit default swaps more transparent, in addition to cutting settlement times from days to seconds.

The DTCC and Digital Asset projects show that blockchain is closer to becoming a standard technology. Blythe Masters, the CEO of Digital Asset Holdings, told CNBC earlier this month that she expects banks to be using blockchain technology within a couple of years, though mainstream adoption is likely to take longer.

Beyond Banking

Financial services is only one area where the use of blockchain technology is showing tremendous potential. As the Internet of Things (IoT) continues to grow and evolve, the security of connected cars, sensors, locks, thermostats and other connected devices is a growing concern. However, blockchain applications can help to address those security issues. The financial services and smart appliance examples are just a few ways that blockchain applications are likely to become widely used within the near future.

Learn more about the latest finance technology, including how to maximize customer engagement and obtain defense-grade mobile security.

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Phil Britt

Phil Britt is an experienced journalist who has covered various aspects of retail and business, including technology, multichannel strategies, collections, payments and supply chain issues for various national publications and websites for more than 20 years. He closely follows developments in the digital economy and the shifts in retail strategies as millennial purchasing power and influence supplant that of baby boomers.

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