This week marked a significant milestone in the securities finance industry as two banks have begun utilizing a blockchain-based platform aimed at streamlining trade reconciliation processes. The platform, known as 1Source, is designed to eliminate manual reconciliations, which have historically plagued the industry, leading to unnecessary costs.
Currently, the securities finance sector spends around $100 million each year on reconciliation teams and resolving settlement discrepancies. The 1Source solution addresses this issue by ensuring that both parties involved in a transaction maintain simultaneous and synchronized records, effectively removing the typical post-trade reconciliation processes.
The new system leverages innovative blockchain technology developed by Digital Asset, which allows multiple entities to securely share transaction data while preserving privacy functionalities. Initially, the platform focuses on North American equities backed by cash collateral, but plans are underway to expand its offerings to include corporate bonds, non-cash collateral, and markets in Europe.
Recent collaborations with firms such as eToro have already demonstrated the platform’s capabilities, allowing users in the UK and Europe to earn additional income through stock lending. Similar initiatives have also been launched by other notable firms in the field.
The implementation of 1Source is just the start, as more firms are preparing to join the growing network. The introduction of this platform paves the way for broader adoption of technology-focused solutions in securities finance, ultimately enhancing process efficiency and resilience within the market.
Managing Directors at the participating institutions expressed their commitment to utilizing new technologies to manage risk and improve operational workflows. By reducing expenses related to mismatched records and operational failures, the platform is expected to save the industry hundreds of millions of dollars annually.
The 1Source platform is particularly beneficial in a market where disjointed back-office systems are common. Such systems often lead counterparties to maintain separate transaction records, resulting in issues like discrepancies in rates or settlement dates surfacing post-trade, which pose liquidity risks and complicate reconciliations.
The platform offers a shared ledger system where both parties involved in transactions can view the same real-time information. It supports various functions such as loan initiation, daily market assessments, rate adjustments based on benchmarks, and the processing of lifecycle events, such as recalls and returns. Additionally, future features are planned to automate certain processes tied to changes in benchmark rates, which could further minimize instances of errors.
Overall, the adoption of such groundbreaking technology signifies a transformative step forward for securities finance. As more participants join the platform, it is expected to strengthen the network’s effect, leading to enhancements in accuracy, transparency, and operational efficiency for the entire industry. The initiative represents a proactive approach to address longstanding issues within securities lending and sets a foundation for continuous innovation moving forward.