A group of Japanese financial institutions are investigating the use of distributed ledger technology in trade matching processes.
In a new working paper, Daiwa Securities Group and 17 financial institutions investigate how DLT could improve straight-through processing in the trade matching of post-trade processing between institutional investors and brokers/dealers in the Japanese securities market.
The report argues that firms need to work on unifying standards but are hampered by a lack of interoperability among service providers’ systems and the non-shareability of databases.
While these issues could be overcome if a central institution established a unified system, there could still be problems when it comes to multi-assets and global situations, says the paper.
An alternative may be the use of DLT, which could achieve the unification of standards without changing the make-up of industry participants by developing a smart contract reflecting standard industry specifications placed on a blockchain.
The partners – including Japan Exchange Group – say that their review shows that the application of DLT is a “promising proposition” in a functional sense for the process of trade matching.
Concludes the paper: “Moving ahead with the initiative of applying DLT to trade matching would lead to further improvement of STP of the financial system as a whole, which would contribute to the benefit of the investors.”