Funds Europe talks to Calastone’s Adam Belding about developments since the company migrated its network to the blockchain.
On May 20, fund processing network Calastone went live with its blockchain-enabled Distributed Market Infrastructure (DMI). The launch involved moving Calastone’s entire network to a new market infrastructure based on distributed ledger technology (DLT).
In all, this involved 1,800 clients in 41 markets, not to mention 9 million messages and £170 billion’s (€188 billion) worth of monthly transactions. Consequently, the DMI now represents the largest community of financial services organisations transacting via DLT, says Calastone.
“We have a strategic roadmap and the May release was the first step,” says Adam Belding, chief technology officer at Calastone. “Every client has been migrated to the DMI and we are now in a position to exploit the new opportunities offered by the technology.”
These opportunities are broadly two-fold, says Belding. Firstly there are the core ‘business as usual’ functions such as reconciliations and settlement, which have long been a core feature of Calastone’s offering but are now open to greater enhancement on the DMI. Secondly, there are the new business and operating models made possible through the DMI and its use of DLT.
Traditionally, Calastone became a pass-through based heavily on financial messaging. Clients’ various message formats were translated by the Calastone network in order to be used for other functions, such as order routing and other pre and post-trade functions.
“With the new DMI, all participants are connected to a common infrastructure,” says Belding. “We now have a central and live view of all the counterparties and who holds what.”
This capability has led Calastone to develop a sub-register that creates a shared, real-time view and history of the registers between trading partners at any point in the distribution chain. In addition, Calastone is also looking to develop payment rails that can be added to the DMI as well as providing an API for clients to directly integrate with the network.
Calastone spent significant time advising clients ahead of the go-live date on what would be involved and what they could expect to see once the platform went live, says Belding. A key part of the preparatory work has been the establishment of an early adopters’ programme involving a number of Calastone’s largest and most sophisticated clients – those working with a range of counterparties and asset classes and operating across a range of jurisdictions.
The early adopter group has been key in developing the second area of opportunity to come from the DMI migration – namely the development of entirely new services and business models. “The early adopters sign up to the programme, we get their feedback and we have a discussion about the new services,” says Belding.
One area of interest to both Calastone and its clients is the world of tokenised assets and Belding is confident that Calastone and the DMI can play an important role in enabling fully digital share classes, a frictionless processing model and a host of other potential use cases.
“We are not a market participant, we are a service provider,” he says. “As such, it means we can do our own work and focus on facilitating our clients. We deal with such a wide range of market participants, all of which have their own ideas and concepts about the new technology.”
Concepts such as digital asset management and tokenised funds are still at a very nascent stage and the complexity involved is possibly not always considered, says Belding. “Up to now, most of the public attention has been focused on digital currencies like bitcoin, where the model is simple and transactional. The funds business is much more complex with processes like custody involved. Consequently, it is not a case of developing a single model that will work for all.”
Another potentially game-changing benefit from the DMI migration is the ability for non-Calastone flow to be added to the network. “We appreciate, from talking with clients, the ability to bring through non-Calastone flow is important to them. We strongly believe that it would be valuable to our entire client community and something very new for Calastone,” says Belding.
“Technology is changing rapidly, he adds. “What previously seemed improbable is now a reality. We are constantly engaged with our clients talking about areas of future development such as tokenisation and new investment models.
“With the introduction of the DMI the industry is operating on a shared infrastructure where data is shared and not stored in silos. If you think about what we do, it’s a natural place for us to be. We are not just a network but a central market infrastructure.”
The client reaction to the migration has been “hugely positive”, says Belding. The extensive preparatory work paid dividends and ensured that the DMI was able to cope with the sheer scale of Calastone’s network. It was also important to reassure some of Calastone’s clients that for all intents and purposes, the core orders service would remain fully accessible and they would not be required to make any changes to their own infrastructure and systems.
“A lot of this type of work around the core services was done prior to the launch,” says Belding. Since going live, Calastone’s technical team has been on a constant roadshow, presenting the possibilities of the move both in terms of the ‘business as usual’ aspects as well as the ‘transformational’ features or concepts, such as allowing for payments and for operating cross border.
Keeping it simple
For all the future possibilities on offer from the new DLT world, the work around the migration has involved going back to the principles that made Calastone successful in the first place, says Belding.
“We made the process simple. We ensured that clients didn’t have to spend money on proprietary technology and linking up to our platform. Instead, we said send us your orders in any format and we will do all the work for you. We made it very simple, through a single connection to our network that enabled clients to immediately become fully interoperable with all the other members.
“Those same principles are just as important now, in the DMI world. The client experience is paramount to this model. The industry is developing very quickly but we want our clients to move at their own pace. We didn’t want the change to be disruptive or a big bang, like some replatforming projects”.
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