The early torrent of media hyperbole about distributed ledger technologies (DLT), such as blockchain and shared ledgers, has now been supplanted by reflection on lessons learned. Scaling concerns were allayed to some degree by DTCC’s November 2018 report that its study of throughput capacity for DLT was sufficient to handle massive U.S. equity trading volumes.
Blog Category:
All
Systems Experts Set the Bar for Blockchain in Securities Finance
February 6, 2019 —Systems entrepreneurs – Armeet Sandhu, Sal Giglio, and Ed Blount – engaged in a lively brainstorming session with Chris Ferris, IBM’s Distinguished Engineer for Open Source Technologies, at IMN’s 25th Annual International Securities Finance and Collateral Management Conference.
Global Banks in Test of US$11 Trillion Shared Ledger at DTCC
Announced on November 6, 2018, the addition of Barclays brings to 15 the number of dealers in the main blockchain project of The Depository Trust & Clearing Corporation (DTCC). By recoding the DTCC’s Trade Information Warehouse (TIW) for bilateral credit derivatives in only 18 months, the securities depository and its team of IT consultants – IBM, Axoni and R3 – hope to show that distributed ledger technology and cloud platforms are feasible options for high volume transaction processing and recordkeeping systems — initially for those services with similar data architectures on a permissioned platform.
Distributed Ledger Tech Can Process U.S. Stock Volumes, says DTCC
On October 16, 2018, the Depository Trust & Clearing Corporation (DTCC) reported that “distributed ledger technology (DLT) is capable of supporting average daily trading volumes in the US equity market of more than 100 million trades per day.” Based on a cooperative study by Accenture, Digital Asset and R3, the clearing and settlement service provider said that DLT can process daily trading volume at peak rates of 6,300 trades per second for five continuous hours. Past benchmarks were based on cryptocurrency blockchains that now operate at fewer than 100 trades per second.
Disrupters Fail to Move Needle with Securities Lending Solutions
The Bank of England’s Securities Lending Committee took up the question of distributed ledger technologies (DLT) in its September 24 meeting. Three vendors were invited to present their concepts to the group of nearly two dozen UK bankers and their regulators. The presentations and the Committee members’ reactions were summarized in the minutes of the meeting. Each vendor approached the market from a different perspective, using a different aspect of DLT. Members found some value in the proposed solutions, yet were generally disappointed in the market impact of the innovative approaches.
Fintech Plans Announced to Digitize Portfolios in the Capital Markets
More than 1,200 dealmakers brought their ardor and business plans to sold-out Polycon18, a giant-sized version of television’s Shark Tank which convened at the Bahamas’ Bal Mar Grand Hyatt Hotel from February 28th to March 3rd, 2018. Attending investors were shown project offerings, as well as conference materials that cited U.S. Senate testimony by SEC chair, Jay Clayton, to the effect that initial coin offerings (ICOs) of securities tokens would indeed be considered securities:
“When investors are offered and sold securities – which to date ICOs have largely been – they are entitled to the benefits of state and federal securities laws and sellers and other market participants must follow these laws.”
JPMorgan Chase Tests Blockchain Use for Securities Services
On May 16, 2018, JPMorgan Chase unveiled Dromaius, its prototype of a shared ledger for capital market services, at Coindesk’s Consensus 2018 conference. The prototype is designed to test the use of the Ethereum blockchain technology in supporting a coordinated posting by multiple entities to a single encrypted securities bookkeeping system. JPMC executive director Christine Moy said that, “We think the technology has the potential to be transformative.”
Ms. Moy, who leads J.P. Morgan’s Blockchain Center of Excellence, told the Wall Street Journal that the technology “should streamline operations, help with cost savings and overall make the experience of transacting or issuing a financial instrument like this more seamless and simplified.”
Will Securities Lending Indemnification Be Regulated Into Oblivion?
Borrower default indemnification, sometimes referred to as a “securities replacement guarantee,” is fairly common in the securities lending industry. Under the typical arrangement, should a borrower of a security fail to return it at the end of the loan, the lending agent agrees to purchase a replacement security for the lender using the proceeds of the collateral posted by the borrower for the loan. The indemnity is applicable if the price of the replacement security exceeds the value of the collateral. In such a case, the lending agent agrees to make up the difference.
For many years, banks have provided borrower default indemnification as part of their securities lending services, which has given beneficial owners additional assurance as to the safety of their lending programs, and has allowed pension funds and others for whom such indemnity is legally required to participate in the securities lending market as well.
The Truth About Securities Class Action Lawsuits is in the Numbers
Stanford law professor Michael Klausner, and his colleagues Jason Hegland and Matthew Goforth, have published an update to their 2011 studies reporting data on the timing of dismissals and settlements in securities class actions. In this latest update published in the April 2012 PLUS Journal, the authors address the factors that affect the timing of securities class action lawsuit dismissals and that affect the timing and size of securities suit settlements.
Klausner, Hegland, and Goforth’s analysis uses statistics derived from all securities class actions filed between 2006 and 2010, 82% of which have been resolved one way or another, and 18% are still open. The sample size consisted of 653 cases, of which 253 have settled, 206 were dismissed with prejudice (preventing their refiling), 74 were voluntarily dropped by the plaintiffs, and 119 are ongoing.