Forty big banks test blockchain-based bond trading system

Friday, 4 March 2016 00:51 - - {{hitsCtrl.values.hits}}

Reuters: Forty of the world’s biggest banks, including HSBC and Citi, have tested a system for trading fixed income using the technology that underpins bitcoin, fintech company R3 CEV said on Thursday.

The banks are part of a consortium of 42 major lenders, brought together last year by New York-based R3 CEV to work on ways blockchain technology could be used in financial markets - the first time so many have collaborated on using such systems.

A blockchain is a huge, decentralised ledger of transactions that can be used to secure and validate any exchange of data, including real assets, such as commodities or currencies.

Bitcoin’s blockchain was the first, but others have since been built that offer additional features and can be programmed. That means the technology can enable so-called smart contracts: agreements that are automatically executed when pre-determined conditions are met.

For this experiment, the banks tried five different blockchain-technology providers to test trading fixed income: Ethereum, often considered the most advanced and ambitious, Chain, Eris Industries, IBM and Intel.

“We have raised the bar significantly with the sheer number of global financial institutions, distributed ledger technologies and cloud providers working together ... to demonstrate how this nascent technology can be applied to ... an actively traded asset class,” said the head of R3’s Collaborative Lab, Tim Grant.

Banks reckon the technology could save them money by cutting out middlemen and making their operations more transparent. But analysts say it is early days - bitcoin was invented just six years ago and developers are still working on the technology.

Indeed, the G20’s Financial Stability Board said on Saturday assessing the systemic implications of fintech innovations would form part of the task force’s core policy work this year and global regulators could propose rules to prevent them from destabilising the broader financial system.

Chain’s CEO Adam Ludwin said: “R3 is further accelerating the adoption of blockchain technology by demonstrating, instead of simply asserting, the commercial advantages of this emerging approach to financial services.”