The open-source library provides for a full reference implementation of the CDM via DAML. This can be executed by anyone through the DAML Software Development Kit which is openly available.
3. All market participants have a role to play
Market participants, regardless of their role, stand to benefit from the CDM. The sell-side, the buy-side, market infrastructure, technology entrants and industry groups can work together to tackle relevant use cases and to drive adoption.
The sell-side has a huge incentive to participate due to their cost base, and their adoption at scale will go a long way to determine the overall success of CDM; however, other types of participants are also hugely active.
For example, the DTCC already has a number of in-flight initiatives to accelerate the time to settlement and optimize the post-trade process. DTCC’s proposal to Match-to-Instruct (M2i) and for Exception Manager could ultimately help to enable more trades to move smoothly and quickly into an optimized settlement cycle. The principles of the M2i complement the CDM concept well as the M2i looks to leverage centralized settlement information and SSIs to create pre-matched settlement instruction. Such initiatives are steps toward a centralized model for post-trade processing and are pulling market participants in the direction of CDM.
FinTechs also have a role to play. If DLT and Smart Contacts are to be part of the CDM adoption answer, the co-development of the underlying blockchain technology needs to allow for advanced solutioning and challenge by the FinTech community. We observed the power of this collaborative development during the DerivHack as bugs were identified and fixes submitted back to Rosetta in real time.
Industry groups such as ISDA and ICMA are very helpful through their provision for use case development. Currently, in cooperation with other industry bodies, ISDA is looking to expand the CDM to other markets and asset classes beyond derivatives and securities post trade. ICMA, for example, is working with ISDA in developing the CDM to extend to bond and repo markets.
4. Choices remain with respect to the underlying technology; interoperability will be essential
Participating teams were permitted to code on a technology platform of their choice, whether this was on a centralized database or on a distributed ledger.
For DLT solutions, teams were given the opportunity to work with platform providers, DAML (Digital Asset’s smart contract language), R3 Corda and Algorand — all firms who have been active in post-trade processing use case development.
The hackathon demonstrated that it is feasible to apply the CDM using DLT. It is too early to say whether blockchain will ultimately be the preferred technology, and if it is, which platforms will emerge dominant. The financial services industry must learn lessons from its past — fragmentation is best avoided, and the extent to which underlying technologies can easily interoperate will help to avoid a repeat of past issues further down the line.