During any kind of financial transaction, before the trade, both parties must arrive at a shared understanding of market conditions and prices. After the trade, they need a mutually agreed upon means of processing, recording and settling the transaction. Each firm brings to the table their own applications, algorithms and infrastructure for exchanging data, and together they must agree on how to execute the transaction.
Today, many financial institutions hire 3rd-party settlement agencies (like CLS) to ensure the integrity of these transactions, trusting them to identify and rectify situations where things go sideways, whether innocently or as the result of fraudulent or non-compliant activity. Each company has a team that deals with reconciling these discrepancies. Including these agencies in the high-volume flow of transactions is important, but adds considerable complexity to the flow of information, and can be quite expensive.
The opportunity to fix this glaring market inefficiency is what has so many people in the financial services industry excited about blockchain-based ledgers: a single source of truth that all counterparties can see and trust.… Read the rest