London and New York, NY
– Markit (Nasdaq: MRKT), a leading global provider of financial information services, today announced that the U.S. Commodity Futures Trading Commission (CFTC) has appointed Brad Levy, managing director and head of Markit’s Processing division, to its Technology Advisory Committee (TAC).
The TAC was created in 1999 to advise the CFTC on the impact and implications of technological innovations on financial services and the futures markets, and the appropriate legislative and regulatory response to the increasing use of technology in capital markets. CFTC Chairman Timothy Massad is the sponsor of the TAC.
The TAC met on February 23rd 2016 to discuss standardisation of swap data and the application of blockchain technology in the derivatives market.
Markit is working with its customers, blockchain technology firms and industry infrastructure providers to use blockchain in multiple asset classes and expects to develop the first applications this year. Brad Levy, managing director and head of Markit’s Processing division, said
: “I am honored to be a part of this important committee. Markit’s network and trade processing services are at the center of the derivatives market and I hope that our experience can help the CFTC further its mission to foster transparent, competitive and financially sound markets.”
Brad Levy served on the Securities Industry and Financial Markets Association Technology Committee and on the boards of directors of innovative financial technology companies, including APX Inc., BondDesk, BrokerTec Futures Exchange, CDS IndexCo, FXall, LoanX, NYSE Liffe US, SecuritiesHub, SwapsWire, Tradeweb and US Futures Exchange.
Following are excerpts of a letter from Markit to the CFTC outlining applications for blockchain and how the Commission can facilitate its adoption in the swaps markets.
Effect of blockchain on OTC swaps markets:
Mutualization of maintenance and security of a blockchain would change the relationship between parties and the financial instruments to which they are a party. Financial instruments would exist in an exclusively digital format on a blockchain. With legal and regulatory support, the peer-to-peer network replaces today’s process by which multiple parties reconcile proprietary books and records to accurately represent the custody and value of a financial instrument at any given point in time.
This network would effectively unbundle the third-party services that maintain the post-trade lifecycle across all asset classes and contract types as reliance on a central utility is replaced through a golden record residing on a single, shared ledger.
Costs associated with blockchain:
It is important to note that such a fundamentally different approach to custody and maintenance of securities is not necessarily a cost saver. The redundancy associated with sharing a ledger might prove so unwieldy that it may still justify the outsourcing of some trade workflows to third parties. However, we remain optimistic of further developments in this space, especially in consideration of the rising costs of reconciliations, post-trade operations, and security that market participants confront today.
Blockchain’s potential to enhance transparency and liquidity in OTC markets:
Moreover, if blockchain technology can demonstrate this promise, opaque markets and the asymmetrical information that entrenches such opacity would be challenged. Greater transparency with respect to price would drive markets to like standards across all asset classes, either through legal digital representations of physical assets or natively defined digital assets. Transparency, alongside reduced transaction and trade maintenance costs, could, in turn, enhance trading liquidity.
OTC market structure and blockchain:
We think it is unlikely that current industry players would lose their ability to compete with the move toward a distributed ledger. Rather, we think the ways in which participants interact, and when, and for what cost, would certainly change. For example, blockchains would never provide insurance against default in the same form as a clearinghouse. However, the amount of capital needed to support a clearinghouse might be reduced. The products and services a clearinghouse offers beyond insurance would encounter a progressively competitive landscape. These are the types of changes that every market incumbent should consider. These changes must also be reconciled with existing regulations that were not designed for blockchain.
The full letter from Markit to the CFTC is available at CFTC.gov
and at Markit.com
More about the TAC, including a full list of members, is available here