Wall Street tests Blockchain technology for CDS transactions

Wall Street banks test out Bitcoin derived blockchain technology to keep track of CDS transactions


Credit Default Swap transactions are notorious for putting the market at risk, and their lack of transparency. In a Credit Default Swap, a buyer makes a series of payments, known as a fee and receives a one time compensation if the referenced loan defaults. CDS transactions by Lehman Brothers, Bear Stearns and AIG were infamous for their role in the financial crisis of 2008. The problem was both the volume of the transactions, and the lack of transparency.

Blockchain is a distributed database, where all involved parties have access to a ledger of all transactions. Blockchain technology was introduced along with Bitcoin, a cryptocurrency based on an open source peer to peer platform.

The Depository Trust and Clearing Corporation (DTCC), an American post trade financial services company just responded to calls for more transparency and regulation in Wall Street with a blockchain implementation for CDS transactions. JP Morgan, Bank of America Merill Lynch, Credit Suisse and Citi participated in the pilot project. Markit, a company that specialises in trade communications, and Axoni, a distributed ledger software developer provided the technical set up for the exercise.

Chris Childs, CEO of DTCC, in an official announcement at the DTCC blog, commented "Blockchain and distributed ledger technology has the potential to revolutionize highly manual, complex processes across global financial markets. This test reinforces that collaboration among service providers will be critical to ensuring the technology is harnessed, assessed and implemented consistently. We look forward to future collaboration with the industry on innovative ways to leverage this technology to reduce costs and increase efficiencies in the post-trade process."


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