This article was written by Yueqi Yang and Anna Irrera. It appeared first on the Bloomberg Terminal.
The main clearinghouse for the US stock market has switched on a settlement system built on blockchain, calling it a “milestone achievement” for adopting digital technologies in markets.
Depository Trust & Clearing Corp. said on Monday that its “Project Ion” platform is now processing around 100,000 bilateral equity transactions a day in parallel with its existing settlement systems, which remain the authoritative record. At peak level, the platform can reach about 10% of the bilateral equity volumes handled by the firm’s classic settlement systems.
There is no specific timeline for when and if the Project Ion platform, roughly two years in the making, will replace the current system, Michele Hillery, DTCC’s general manager of equity clearing and DTC settlement service, said in an interview. The decision will depend on the technology’s performance, client feedback and regulatory approval.
“We need to explore and vet it, see how it performs and determine how to best move the platform forward,” Hillery said. DTCC made a deliberate decision to take a “cautious and sensible” approach by starting Project Ion as a parallel system, she added.
DTCC, which facilitated the settlement of $152 trillion worth of securities trades last year, is one of many financial institutions that have been experimenting with blockchain-based systems since the technology started appearing on Wall Street about seven years ago.
Banks, exchanges and other market structure participants have stepped up blockchain investment, betting the technology underpinning cryptocurrencies like Bitcoin can help drive down costs and streamline some of their most complex behind-the-scenes processes, such as settlement.
So far, however, most projects remain at the experimental stage, and blockchain’s benefits in traditional finance have remained elusive. In one of the most ambitious cases, Australia’s main securities exchange operator ASX announced plans to replace its main trading applications with a blockchain-based system. But the project has suffered from delays and is not expected to go live before late 2024.
Project Ion runs on a private, permissioned blockchain, unlike the public ones underlying most cryptocurrencies. It is being built to settle transactions either two or one days after the trade, or on the same day. Potential benefits of using blockchain include simplifying reconciliation processes and making data more accessible, Hillery said.
DTCC developed the platform with technology provider R3 and in collaboration with market participants including Goldman Sachs Group Inc., Citadel Securities and Robinhood Securities. It is working on an expansion of Project Ion, including potentially applying it to other assets, such as corporate bonds and municipal bonds.