A number of buy-side and sell-side firms have come together to explore using blockchain technology could be used to improve reference data processes.
The group, which is working alongside technology firms R3 and Axoni through the Securities Industry and Financial Markets Assocation (SIFMA), has recently complete a proof of concept excersise that was coordinated by Credit Suisse to build a distributed ledger prototype that would enhance risk management, cost and efficiency for reference data.
The concept was developed using Axoni’s proprietary distributed ledger software to simulate collaborative management of reference data. Participants in the test were able to interact with the reference data after corporate bond issuance. Any proposed changes to the data required validation by the underwriter to give the ledger a single, immutable record of all data related to the bond.
The firms claim that up to 70% of the data used in financial transactions is reference data, underlining the importance of ensuring such datasets are accurate.
Dean Rutter, CEO of R3, said: “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.”
While the initial prototype suggests blockchain technology could have applications in reference data, it remains in its early stages, though participants in the proof of concept hope it will encourage further review of how it can be applied to improve efficiencies in data and other financial services applications.