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Tokenized securities save money, reduce risk and improve client experience, Fintech leaders say.
Distributed Ledger Technology (DLT) is overhauling repo market infrastructure, according a recent webinar hosted by Broadridge Financial Solutions entitled “DLT in Action: Why Leaders Made the Switch.” Participants have seen immediate savings in the “multiple millions of dollars,” explained moderator Horacio Barakat Head of Digital Innovation, Capital Markets at Broadridge. The webinar featured a panel of concurring early adopters, including Thomas Sullivan, Managing Director at Société Générale, and Kelly Mathieson, Chief Client Experience Officer at Digital Asset, whose Daml programming language and application framework underpins many DLT-enabled products. Both heralded the simplification of operations and reduction of operational costs offered by the technology.
There has been a “significant uptick” in DLT activity over the past year, Barakat noted before asking panelists to expound on this relatively swift adoption.
Mathieson pointed to the inefficiency of legacy processes. With workflows established in bits and pieces over time, the current system bears “a high degree of risk in terms of handoffs.” DLT is a much-needed breath of digital fresh air, she said, enabling seamless, multi-party workflows.
Sullivan noted the immediate savings, increased efficiencies and better client experience enabled by DLT incremental builds. Use cases can be targeted and immediate, allowing stakeholders to fully grasp the technology, he explained. “It’s no longer only about a stock, a bond or a swap, but what happens all along the way with the collateral movement. You might sell a stock and then somebody else uses it for a security lending transaction, and somebody else uses it to allocate collateral on a tri-party transaction. That's kind of the big-time DLT vision, and it’s not too far off."
Digitized expressions of an asset create infinite possibilities for how it can be defined, Mathieson explained, representing a significant leap past traditional reference data. “It's the asset itself that's letting you know whether it's eligible for a particular obligation,” she said, leading to real time liquidity management and lower overall operating costs. Multiple eligibility criteria for legal entities can now be embedded directly on the asset, as can rules governing substitution, recall and RQVs.
The ultimate upside in adopting the technology, though, is the opportunity “to interact as part of a tokenized, smart contracted and DLT-supported network,” she noted. This, for example, allows organizations participating in Broadridge DLR to also participate in the ASX, Deutsche Börse, HKEX and NASDAQ - all without requiring additional DLTs.
While multiple compliance issues may be at play depending on the use case, Sullivan stressed the importance of helping legal teams familiarize themselves with the concept of tokenized assets in the first place. The Société Générale solution, for example, is to employ DLT for intracompany repos exclusively for now so tokens never leave their four walls.
Organizations are often too bounded by roles within departments, Sullivan noted in conclusion. While some segregation of duties makes sense, streamlining steps by referencing a single source of truth is “the ultimate dream” of DLT. Mathieson agreed and added that processes have also been limited by the system boundaries for too long (e.g., trade cutoff time is 45 minutes before the market closes, etc.)
“I’d love to see what it means when the limitations of systems aren't gating us from processing a transaction,” she said. “We're working with clients on how financial services solutions around the globe can connect more efficiently so that an economic network is created. If we do this same webinar a year from now, I’m excited to see what solutions were created as a result of these powerful economic networks.”
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