Blockchain is one of THE buzzwords in recent years. Governments, industries and companies alike are seeking to use blockchain technology to boost cybersecurity and build what amounts to a new transaction layer based on the idea that cryptographic keys and shared ledgers can incentivise users to secure and formalise digital relationships. The alternative funds industry is no exception. Various initiatives are underway.
Derivatives processing solutions
The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, announced in January 2017 that it had selected IBM, in partnership with Axoni and R3, to provide a ‘distributed ledger technology’ framework to drive further improvements in derivatives post-trade lifecycle events.
The firms will work collaboratively to re-platform DTCC’s Trade Information Warehouse (TIW), building a derivatives distributed ledger solution for post-trade processing based on existing TIW capabilities and interfaces with technology providers and market participants. The distributed ledger protocol built by Axoni is being submitted to the Hyperledger open source community.
Hyperledger Fabric is a modular, scalable, secure permissioned blockchain framework that allows enterprises to develop their business solutions. Hyperledger Fabric leverages container technology to host smart contracts called ChainCode that comprise the application logic. Initially contributed by Digital Asset and IBM, Hyperledger Fabric has 159 engineers from 28 organisations contributing to this project.
Digital identity solutions
The Cayman Islands has rapidly developed into a hub for blockchain technology. With Cayman Finance’s working group, Fintech Innovation labs, teams are working on building an identity ecosystem and prototyping globally certified digital IDs as a federated service, where participants would purchase tokens to verify the identity information to perform their Know Your Client/Anti-Money Laundering (KYC/AML) processes. This service could be relied on by banks, for example, to vastly reduce costs – banks currently spend 20% of their expenses towards KYC/AML.
Fund distribution solution
In July 2017, Natixis Asset Management completed a first real blockchain transaction in fund distribution. This was enabled by FundsDLT, a platform developed to enable asset managers to sell funds through a new distribution channel while significantly reducing administration costs and time to process transactions for both asset managers and other service providers. It is the result of collaboration between Fundsquare (a subsidiary of the Luxembourg Stock Exchange), InTech (a subsidiary of POST group) and KPMG Luxembourg.
Blockchain is here to stay and those who do not adopt the new technology will soon be left behind. Brilliantly, blockchain has managed to simultaneously bridge major gaps in transparency while tackling data security and enhancing operational efficiencies which will extend soon into the very way we do business and lead our digital lives. To say that this is the next industrial revolution is not a hyperbole.
Lenin Perumalsamy, Senior Manager – Hedge Fund Solutions, Maitland
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