Axoni, JP Morgan, Goldman Sachs Trial DLT for Equity Swaps
Eleven firms announced the successful completion of a pilot to manage equity swap transactions and related post-trade lifecycle events. The implementation employs blockchain smart contracts and uses an optimized data structure in a distributed, peer-to-peer network to ensure perpetual reconciliation.
A continuation of an initial proof of concept, the pilot expanded the blockchain network to process equity swap lifecycle events, end-to-end. Having both sides of a swap transaction on the same ledger allows counterparties to simultaneously view and share data during the entire lifecycle of the swap – from proposal to termination.
This synchronization of data, increased transparency of calculation logic, and automation of corporate actions processing will reduce operational costs and errors and allow real-time data access for both client and regulatory reporting.
"Equity swap data is infamously complex and difficult to manage, making it a terrific fit for distributed ledger technology” said Greg Schvey, CEO of Axoni.
The pilot was managed by Axoni and executed on AxCore, Axoni's distributed ledger software. The broad participant group included seven swap market participants from both the sell-side and buy-side including: BNP Paribas, Citi, Credit Suisse, Goldman Sachs, J.P. Morgan as well as industry service providers IHS Markit and Thomson Reuters.
Over the course of the multi-month pilot, the project tested automated lifecycle management and synchronization of single stock and portfolio total return swaps, as well as critical components regarding the deployment and management of the distributed ledger network.
Key functionality tested included trade creation, position building, amendments, novation, termination, swap aging, stock splits and dividends, reporting, and private key management. A 100% success rate across all tests was achieved.
In addition, a diverse set of non-functional tests covering privacy, security and performance were also conducted to assess the robustness of Axoni's blockchain infrastructure.
Axoni used a standardized data structure for the swaps, built in collaboration with the International Swaps and Derivatives Association (ISDA). The participants also collaborated on a governance framework that can be used to oversee and manage a production network.