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Press Release: R3 and Axoni Explore the Use of Distributed Ledger Technology to Reduce Risk in Reference Data Management with buy and sell side financial services firms

  • Collaboration allows for more efficient data management processes, with potential to lower risk
     
  • Prototype enables buy- and sell-side to maintain governance of reference data
     
  • Ledger could remove need to reconcile multiple copies of data across legacy systems
     

20 September 2016 (New York/San Francisco/London) – Seven buy-side and sell side firms, including AB (Alliance Bernstein), Citi, Credit Suisse and HSBC, have collaborated with financial innovation companies R3 and Axoni to explore how blockchain technology could simplify reference data processes.

 

The group, working with R3 and Axoni through the Securities Industry and Financial Markets Association (SIFMA), recently completed a multi-month proof of concept (PoC) exercise, coordinated by Credit Suisse, that aimed to build a distributed ledger prototype that can enhance the risk management, cost and efficiency issues inherent in managing financial reference data.  

 

The prototype was created using Axoni Core (Axoni’s proprietary distributed ledger software) to simulate the collaborative management of reference data, as well as the use of that reference data for corporate bond issuance. The technology enabled participants to interact with reference data after issuance, with any proposed changes requiring validation by the underwriter to ensure the ledger provided a single, immutable record of all data related to the bond.

 

Reference data makes up 40% to 70% of the data used in financial transactions and includes information such as financial product specification, issuer detail, counterparty information, currencies, corporate actions and prices.[1]

 

Reference data requires constant maintenance as reference entity names, counterparties, and securities data change over time. Lack of automation and a reliance on legacy systems and processes currently require each institution to keep its own record of reference data, introducing inconsistencies and requiring resources for reconciliation. New and emerging regulations such as EMIR in Europe and the Dodd-Frank Act in the US have highlighted the need for financial institutions to effectively manage and maintain reference data.

 

The collaborative prototype demonstrated the potential application of distributed ledger technology as an agile solution which could provide the capability for regulators and network participants to view in real time which parties on the ledger have created, issued and proposed amendments to the data record. Moreover, the implementation of distributed ledger technology deployed in this project facilitated ongoing, automated data distribution across all participants, as well providing a model to manage conflicting data – demonstrating potential solutions to two of the leading causes of reference data inaccuracies. The study of distributed ledger technology’s application to reference data is still in its early stages; this exploratory exercise was designed to encourage greater review and analysis of how distributed ledger technology could be used to enhance financial services operations.

 

David Rutter, CEO of R3, comments: “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.”

 

Thomas Chippas, COO of Axoni, comments: ”This project demonstrates distributed ledger technology’s value in financial markets beyond commonly-discussed use cases such as trade settlement and cash movement. A reliable, distributed, synchronized reference data store will eliminate vast amounts of expensive, replicated infrastructure and workflows across industry participants. It was a pleasure to work with R3 and the other participants. We look forward to helping this effort progress.”

 

“Using Blockchain and Distributed Ledger Technology as a shared reference data backbone for the industry makes intuitive sense. Our vision is to demonstrate how distributed ledgers applicability can go beyond settlement and help reduce duplicate reference data costs and improve data latency which will ultimate lower costs and reduce operational risks,” said Emmanuel Aidoo, who heads the Distributed Ledger and Blockchain effort at Credit Suisse.

 

SIFMA helped to coordinate testing of the prototype and will continue to work with its members to review the potential application of blockchain technology in reference data.

 

 

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About R3

 

R3 is leading a consortium with over 60 of the world’s largest financial institutions to develop ground-breaking commercial applications for the financial services industry that leverage the appropriate elements of distributed and shared ledger technology.

 

Operating in New York, London and San Francisco, the R3 team is made up of financial industry veterans, technologists, and new tech entrepreneurs, bringing together expertise from electronic financial markets, cryptography and digital currencies. 

 

The R3 Lab and Research Centre has quickly become a centre of gravity for collaborative research and testing of distributed and shared-ledger inspired technologies, and is where R3 works with its partners to define, design and deliver the next generation of financial infrastructure.

 

 

About Axoni

 

Axoni is a capital markets technology company with a specialization in distributed ledger applications. The firm has delivered production blockchain asset trading technology for more than three years, serving institutional clients across the globe. Founded in 2013, Axoni is responsible for multiple successful technology deployments in collaboration with the world’s leading banks and infrastructure providers.

 

 

Press contact

 

Nick Warren/Ellie McFatridge

Chatsworth Communications

+44 (0)207 440 9780

contact@chatsworthcommunications.com

 

Charley Cooper

R3

+1 917 855 8529

charley@r3cev.com

 

 

This press release is for information purposes only and are not intended to constitute, and should not be construed as, an offer to sell or a solicitation of any offer to buy any securities of R3CEV LLC (the “Company”) in the United States or in any other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of such jurisdiction. 

The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words "may", "will", "should", "expects", "plans", "intends", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" and similar expressions identify forward-looking statements. Past performance does not guarantee future results in any respects.

 

Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the company’s core business and core markets, (ii) performance of financial markets, including emerging markets, and including market volatility, liquidity and credit events, (iii) the frequency and severity of insured loss events, including from natural catastrophes and including the development of loss expenses, (iv) the extent of credit defaults, (v) interest rate levels, (vi) currency exchange rates including the Euro/U.S. Dollar exchange rate, (vii) changing levels of competition, (viii) changes in laws and regulations, (ix) changes in the policies of central banks and/or foreign governments, (x) the impact of acquisitions and commercial arrangements, including related integration issues, (xi) reorganization measures and (xii) general competitive factors, in each case on a local, regional, national and/or global basis.  Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences.

 

The Company assumes no obligation to update any forward-looking statement or update any information contained in the press release.

 

 

[1] Capgemini: Reference Data and its Role in Operational Risk Management