VIDEO | Distributed Ledger Technology (DLT) is poised to transform asset servicing, but its widespread adoption faces significant hurdles, according to industry experts. At PostTrade 360° Nordic 2024, panellists from major financial institutions explored how DLT could streamline processes such as bond issuance and corporate actions while addressing challenges like standardisation, settlement risk, and market fragmentation.

A central theme of the discussion was the need for standardisation, particularly in bond issuance and asset servicing. Fabian Vandenreydt, chief product and partnership officer at NowCM, emphasised that a well-structured, digitised issuance process is crucial to ensuring the efficiency of downstream activities. “If you don’t get the genesis right, it ripples down through the value chain,” he said. Ryan Marsh, head of Innovation & strategic investments at Citi, stressed the importance of creating a “single immutable golden source” of data for all market participants.

The panel acknowledged the role of ISO 20022, a long-standing messaging standard, in harmonising data. However, Vandenreydt pointed out that not all market participants, especially issuers and investors, are eager to adopt such standards. He called for solutions that simplify data-sharing without imposing unnecessary technical burdens.

Advertisement

Watch the session video here!

When logged in, pick up your free access pass for this Nordic conference if you haven’t. Then browse back to this page, and the video will show up in this box.
(Don’t have an account here yet? Register here. This is separate from the event platforms where you may have been signed up as a delegate.)
Login

Due to a technical error, one of the microphones was not working properly during the beginning of this session. When watching the video, click on the transcript icon in the right corner to be able to read along.

Smart contracts

Smart contracts, which automate processes like dividend payments, were another focus of the panel. Marsh noted that for smart contracts to fully realise their potential, both the asset and cash need to be on the same ledger. “If the cash is funded into the contract, the contract can then self execute along the value chain. That is the Nirvana state we are all aiming for, but I think we are quite a while away from that.” he explained.

Marsh also highlighted the potential of smart contracts to enhance bond transactions by calculating and possibly releasing coupon payments in real time. However, the panel agreed that the industry is still far from reaching this level of automation, with many technical and operational hurdles remaining.

Settlement risks

The panel addressed whether DLT could reduce settlement risks in asset servicing. Marsh made it clear that while DLT can help, it is not a complete solution. “To reduce settlement risk, ultimately, there needs to be pre-funding of assets,” he said, noting that DLT alone cannot solve the inefficiencies in settlement cycles.

Fabian Vandenreydt pointed out that Central Securities Depositories (CSDs) still play a critical role in ensuring smooth settlement and collateral management. “CSDs do a lot more than just settle transactions,” he remarked, warning that replacing CSDs entirely with blockchain technology could create additional inefficiencies.

Fragmentation and interoperability challenges

The risk of fragmentation was a major concern, as financial institutions continue to develop their own blockchain systems. Wayne Hughes, head of Digital Assets at BNP Paribas acknowledged this issue but explained that BNP Paribas’ approach is to maintain both internal blockchains and connections to external chains for market use cases. “We’re keeping our options open”.

Vic Arulchandran, director and head of digital Assets at Deutsche Börse Clearstream, agreed, noting that the challenge of interoperability between different blockchain systems remains significant. “There is still a problem in capital markets, at least, around agreeing on how data should be shared and in what format. This is not a blockchain problem, this is a capital markets problem,” he concluded.

Panellists:
Vic Arulchandran, director, head of Digital Product and Market Design, Deutsche Börse Clearstream
Wayne Hughes, head of Digital Assets, Securities Services, BNP Paribas
Ryan Marsh, head of Innovation and Strategic Investments, Securities Services, Citi
Fabian Vandenreydt, chief product and partnership officer, NowCM

Moderator:
Colin Parry, CEO, International Securities Services Association (ISSA)


• The consolidated PostTrade 360° Nordic conference, in Stockholm on 4–5 September 2024, came to host 1,200+ delegates and featured 70 sessions.
• Log in and watch the sessions – for free! Links in the grey video boxes on each article will guide you intuitively. Yet, if you still want watch the 2-minute intro to our video offer, click here.
• Our coverage relating to the event is indexed here.
• By the way … are we connected on LinkedIn already? Follow us here.