Depository Trust & Clearing Corp. embarks on testing blockchain application for short-term lending markets (repos) that amount to $2.6 trillion, expecting to further boost them.

DTCC, a Wall Street company that helps to settle trades in the repo market and elsewhere expects that blockchain will bolster the market that is currently experiencing difficulties. Wall Street Journal explains that repos (repurchase agreements) play a crucial role in the financial system by keeping up the circulation of cash and securities between different financial institutions – hedge funds, investment banks and others. However, for some time now this part of the market is increasingly illiquid because of its role in the demise of Bear Stearns and Lehman Brothers Holdings Inc. and new regulations that reduce the firms’ ability to run risks.

A repo market works like this: brokers “sell” bonds to money-market funds while simultaneously agreeing to repurchase them or receive them back on a specific date and at an agreed-upon rate.

The blockchain technology will allow borrowers and lenders to track the cash flow and securities movements in real time. According to the managing director and head of clearing services at DTCC Murray Pozmanter the blockchain technology will enable companies “to agree on trade terms more quickly.” In order to apply blockchain solution to repo markets, DTCC partnered with Digital Asset Holdings LLC where DTCC invested earlier this year.

During the Blockchain Symposium held on 29 March, DTCC CEO Michael Bodson asked Blythe Masters, former JP Morgan Chase & Co. executive and current Digital Asset Holdings CEO, about the perspectives of his company in the transforming financial system where a lot of players turn to blockchain-based innovations. Ms Masters warned him about the emergence of companies that offer low-cost clearing and settlement blockchain-enabled solutions and thus can reduce DTCC’s market share. Still, Ms Masters assured Michael Bodson that those providers would not oust DTCC from the market.

Anna Lavinskaya