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Multi-Firm Blockchain Implementation for Equity Swaps Completes Second Phase
Traders Magazine Online News, November 24, 2017
Eleven firms announced the successful completion of a pilot to manage equity swap transactions and related post-trade lifecycle events. The implementation employs blockchain smart contracts and uses an optimized data structure in a distributed, peer-to-peer network to ensure perpetual reconciliation.
A continuation of an initial proof of concept, the pilot expanded the blockchain network to process equity swap lifecycle events, end-to-end. Having both sides of a swap transaction on the same ledger allows counterparties to simultaneously view and share data during the entire lifecycle of the swap – from proposal to termination.
This synchronization of data, increased transparency of calculation logic, and automation of corporate actions processing will reduce operational costs and errors and allow real-time data access for both client and regulatory reporting.
“Equity swap data is infamously complex and difficult to manage, making it a terrific fit for distributed ledger technology. We’re delighted to have reached another key milestone alongside our partners on this project and grateful for their collaborative efforts to demonstrate how powerful this tech can be,” said Greg Schvey, CEO of Axoni.
The pilot was managed by Axoni and executed on AxCore, Axoni’s distributed ledger software. The broad participant group included seven swap market participants from both the sell-side and buy-side including: BNP Paribas (EPA: BNP), Citi (NYSE:C), Credit Suisse (NYSE:CS), Canada Pension Plan Investment Board, Goldman Sachs (NYSE: GS), J.P. Morgan (NYSE:JPM) as well as industry service providers IHS Markit (NASDAQ: INFO) and Thomson Reuters (NYSE: TRI). ISDA provided equity derivatives documentation expertise and Capco provided consulting services.
Adam Herrmann, Global Head of Prime Finance at Citi, said, “Citi is pleased with the results of another successful equity swap pilot with Axoni. The contribution from investment managers to this effort signifies AxCore’s potential to add value end-to-end. Fewer valuation disputes, less reconciliation and real-time access to data would benefit all of the industry.”
“The equity swap pilot demonstrates the benefits of collaborating with innovative tech startups like Axoni and our industry peers to embrace new technology solutions that can contribute to commercial outcomes and operational efficiencies,” said Rana Yared, Managing Director, Goldman Sachs Principal Strategic Investments.”
Over the course of the multi-month pilot, the project tested automated lifecycle management and synchronization of single stock and portfolio total return swaps, as well as critical components regarding the deployment and management of the distributed ledger network.
The extensive testing conducted included a diverse set of over 70 structured test cases to assess lifecycle functionality and integration with external systems, including IHS Markit’s SwapOne platform. Connectivity to SwapOne was leveraged as an option to manage post-trade calculations, including accruals, resets, and payment schedules.
Key functionality tested included trade creation, position building, amendments, novation, termination, swap aging, stock splits and dividends, reporting, and private key management. A 100% success rate across all tests was achieved.
In addition, a diverse set of non-functional tests were also conducted to assess the robustness of Axoni’s blockchain infrastructure. These tests covered privacy, security, network health monitoring, node management, and network performance – with real-world throughput volumes successfully processed by the network.
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