Chris Neill moderates the Panel at BFC 2018 NA
By: Xinfin Xdc Hybrid Blockchain Network
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Chris Neill moderates the Panel at BFC 2018 NA

Chris Neill moderates the Panel on the Role of DLT in Post Trade Processing at BFC 2018 NA

Chris Neill moderates the Panel at BFC 2018 NA

Chris Neill, Head of American Development, XinFin moderated the panel discussion on the role of Distributed Technology (DLT) in Post Trade Processing at Blockchain For Finance Conference, North America recently held in Boston.

Chris Neill moderating the Panel on the Role of DLT in Post Trade Processing at BFC 2018 NA

Topics covered in panel discussion:

Inefficiencies in the current tech with post trade processing and the DLT promise

Time: 4:30–6:59 minutes

The duplication of steps is happening across eco-chains as banks, clients, infrastructure providers, CCPs and regulators are doing the same thing.

One of the reasons for duplication is the disagreement on the processing steps, while at the same time, everyone trying to process steps within their respective operations while pushing regulators to the end of the chain due to a reporting perspective.

It’s not that technology is inefficient, but people haven’t realized till now that reinventing the wheel internally and trying to reconcile every single step all the way through the life of the trade is not benefiting anyone.

Elimination and reduction of the reconciliation and standardization to develop common workflows, processes and data sharing is all possible with blockchain but with programming of workflows higher up the chain, one can synchronize the actual timings which is the most important thing for reconciliation. Distributed ledger technology makes it possible.

Achieving T2, T1 or T0 Settlement times in post trade processing with inefficiencies involved

Time: 7:00–13:09 minutes

Staying away from hype and breaking down every business problem one wants to solve and then evaluating each one in isolation and then bringing all problem statements together is the right way to do it. The integration of the DLT component on the network allows you to address more of these problems in longer term.

Market convention that everyone agrees to is an important part. So, how do we apply DLT in post trade in 2018–19 is important.

Rather than most of the people taking the exact workflows of the processes and just mapping it to blockchain and waiting for some magic to happen, they should map the existing processes onto a technology that allows them to do things in a much more peer-to-peer fashion.

The good thing is the instant recognition of DLT in capital market by major players who got confidence of not only removing the duplication but also truly digitizing the processes by fundamentally changing workflows and doing things differently.

Breaking down and understanding the workflows, questioning the very existence of workflows, knowing what actually needs to be done and then making those workflows fundamentally more efficient by reducing middle and back office cost is required.

Rather than automating the exceptional workflow, the approach should be to eliminate exceptions in first place. Re-architecting the whole platform, and re-thinking the workflow will help architect the digitization using DLT and Blockchain.

Is the technology ready? How are the lack of standards constraining the progress and why there is a disagreement for standardization?

Time: 13:10–26:39 minutes

Immediate feedback on standards, its applications and questions is important because the standards are evolving and applications of the standards in terms of DLTs and enterprise platforms are being tested.

Knowing what the standard is attempting to do is very important. Take each processing step (say there are 150 steps…) and translate them into 12–15 core state transitions and then throw a set of inputs to these state transitions to run some validation roles that guarantee you a deterministic output.

Putting a standard on a DLT platform, an enterprise platform and on market utility provider in post trade processing guarantees the standardization of workflow across different vendor platforms.

Fragmentation of solutions and the amount of money spent in reconciling across front back solutions is massive. Whereas, standardization promotes the commercial aspect within the value chain while preserving compatibility across those platforms.

Amidst so many DLT providers, utility providers, it’s important how infrastructure providers pick these standards and the critical mass developed around these standards and what are we getting from technology providers in facilitating that.

The challenge is to figure out the right timing to standardize and at what level it will happen is also very crucial. Domain model and sticking to standardization will help in advancing the entire industry and building the enterprise blockchain space.

The goal should be to ensure that everything from processing, storage to execution is standardized and on top of that; DLT abstraction is built which enables to share and create distributed state machines.

The goal should not be to create things that everyone struggles to adopt but something that is for easier adoption and enables state machines to do tasks themselves through standardization and DLT abstractions.

How do you translate down to the lower level details of DLT abstractions is also very important? The cryptographic hash allows you to standardize because it doesn’t matter how you store the data. The same hash means you have the same object which can be same state, same trade information etc.

While the tech is ready for smaller use cases, it is important to know for what all use cases of specific scale the tech is ready. Volumes are a critical component. The values tend to be highly correlated to the actual scale of a process. From the performance aspect tech is ready but for larger use cases still it is evolving.

Scale component has many pieces and all the different users and different nodes that create the system would demand business intelligence, operational requirements and compliance reports so the system has to do all this securely supporting all models needed for other systems to run in agreement.

Industry is implementing enterprise grade solutions that connect systems including risk, compliance, reporting, regular operational users all at the same time becoming a part of market infrastructure.

The challenge for the whole enterprise blockchain is how they retain the benefits of a blockchain system i.e. the shared truth across market/industry securing privacy and scalability.

Any approach taken for enterprise blockchain should be different which you can scale horizontally.

Relationship of DLT and digital assets with enterprises/exchanges, the adoption of DLT by enterprises for post trade processing and exchanges.

Time: 26:30–36:20 minutes

There are certain use cases that fit the capability of the risk tolerance of the tech and regulators in the market. However, these platforms need to be tested for resiliency, privacy and security and how these systems solve the performance problem, what are the architectural designs, the decisions and the compromises of the same. So, knowing about use cases of higher scale should be the next step.

It’s important to know what the use cases are trying to solve, are they localized, are efficiencies localized, is network being affected from those use cases only then there is process optimization and efficiency gain.

Not everybody is willing to go through the journey of blockchain in post trade so figuring out the transition stage where enterprise systems can co-exist with blockchain, DLT and smart contracts will result into co-existence of legacy platform with new platform. So, no rip and replace play is going to happen for institutions participating in the ecosystem.

Participants expect the DLT platforms to facilitate that transition but each platform behaves in a different way which makes difficult for a commercial enterprise of value to pick one ring to rule it all.

If interoperability is not there, then what are the other options for DLT platforms, how do they all work together is a big technological challenge before broad base adoption of these platforms.

Institutions should get efficiency gains from the DLT technology, the multiple internal systems, multiple legal entities, multiple reporting entities, multiple entities that simply cannot have the same data because of privacy/EU should work together.

Enterprise have built this network or abstraction across their internal system which industry thinks that it’s not a DLT as the entire network is not brought together but the reality is digital transformation has already started with DLT data model and an effort is their to connect with other network participants.

Interoperability is very important. Learning the tech, ensuring all applications really fit the technology, standardizing tools and trying and applying for use case that are right.

Extracting data from systems, transforming it, loading it onto systems should be done using standard models. Rather than trying and inventing new languages, the effort should be to make it straightforward and simple so that code can be automatically generated for people.

Higher level DLT abstraction instead of lower level details as latter can be provided as library on which upper level applications can be built, hence promoting interoperability and faster adoption of DLT.

The DLT adoption has already started by exchanges. Market infrastructure will play a key role in setting up entire blockchain space. All are coming together for the cost reduction i.e. revenues where lies the most excitement.

A move has already started to tokenize all the assets being traded in some of the exchanges and balance sheet optimization.

Platforms are being tested, banks coming in to play the cost part so that there is mutualized cost, market infrastructure & exchanges anticipating high gains so there is exhilarating adoption of DLT.

DLT and it’s affect on actual end user.

Time: 36:21–47:06 minutes

The real benefit for end users is actually lower cost whereas the fact is the end consumers pay a high cost in the kind of complex infrastructure we have. The big users of commodities in futures market approach SMEs in want of hedge and purchase futures against commodity pricing totally ignorant of the commodity next year and lock down cancel prices. Given the inefficiencies in post trade processing, companies are paying higher cost for futures trade and finally the customers.

Costs are equally born by big financial companies and banks which is eventually coming down to us as fees and costly products. DLT can inject this efficiency in all these systems which can translate to more efficient use of capital in the broader economy. So, end users will be benefitted.

The approach should be how do I maximize my investment in technology and operations so that business can be run efficiently and capital can be deployed on a revenue generating product. Looking at the entire infrastructure stats, businesses find a benefit in fixing their own shop first by adopting DLT platform. But what happens next?

What happens next is dependent on some critical mass, development in the industry and coming together to build one use case which can be solved across a core set of like-minded participants with technology partners, with infrastructure providers demonstrating material benefits.

No one would want to maintain legacy platforms as well as new technology in one place as it is very expensive. Once we solve the performance throughput kind of questions, it becomes more tangible for businesses in learning how do I create and deploy in internal stack, how do I run legacy and the new technology in parallel and how much will it cost.

The co-existence of distributed/decentralized technology and market utilities together poses some questions. Censorship resistance and dealing with trust with unknown parties in not a requirement actually. The challenge is to find out to the most efficient way to solve these problems.

Utility brings efficiency through some elements of centralization for processing certain components that are not required to be distributed, for governing network/participants that are equally represented, for dealing with participants that may never have to the cost benefit of adopting a node and being an intimate integral part of the network.

The disintermediation of everything for the sake of it should be replaced with effective and efficient solutions for the problem. The ability to move peer to peer can be move to more and more levels, stack governance and more.

Peer to peer technology is architecting correctly and now there is a need to think of new ways to marketize and access capital. ICOs are a perfect example of beginnings of a more direct inter-marketized capital market. Buy and sell side seem to be fading and market participants, banks and SMEs all trying to figure out how they can fit together. So, more like-minded peer to peer transactions is required with each other on a cross-border basis.

There is a vast class of applications today which need some type of intermediary today but sometimes these processes that involve the intermediary aren’t as efficient. Making components P2P can add value however utilities also play a key role. The application built today should bring all p2p components together with the right enterprise, the right execution model and the right components together. If DLT makes sense use it otherwise look for other alternatives.

When there are multiple participants, multiple systems that can connect there is a good need for taking for some of the common ideas, building some standardizing across them and then using the execution model that comes out of original P2P learning and the DLT model.

Is there going to be a time for fully decentralized operations? Do we see this adoption happening i.e. a decentralized transition strategy?

Time: 47:07–52:20 minutes

No technology can just come and say that we are going to disintermediate the present systems for particular utility as we need some sort of a third party to step in by regulatory mandate. They provide risk management feature which is a regulatory mandate so these would remain until there is a new regulatory mandate and process optimization.

The processes are commercially non-differentiated and there is no secret sauce here. In this process of defining standards and finding use cases where businesses can work towards efficiencies changing some of the structural elements of the markets no one will oppose that change. The change has to come little bit organically across the industry participants. It’s not really for the regulators to mandate this, it is an industry ecosystem, participants have to figure this out for themselves.

So, the question is not P2P eliminating central authorities but about the applications. No currency can be standardized across banks and in terms of tokenization also, a cryptocurrency is involved which will be issued by a group of people and then these tokens will be traded amongst the network participants. So, full decentralized will take time and we don’t see elimination of banks and more happening in near future.

The disintermediation ideas are not bad but businesses don’t see anything radical happening in 2–3 years. It might happen down the line in 5 years or more.

What businesses can see is market participants actually adopting and trying to become very friendly to this new idea of digitization and new way of thinking (DLT) which makes their operations efficient and eventually translate into lower cost for everyone.

XinFin openly invites FinTechs, SME’s, banks, financial institutions, fund & asset managers to come & join us. XinFin already has a Sandbox environment & are licensed to do live transactions. XinFin has live API’s and would like to invite you to build standardization around it & gradually roll them out into live production. XinFin has approached several regulators around the world which establishes credibility in many different jurisdictions.

If you are looking for consortium membership, standardization or want to build around regulators, XinFin can provide a platform you.

Visit: www.tradefinex.org

Visit: www.xinfin.org or email us at info@xinfin.org