ICAP, which matches buyers and sellers of bonds, swaps and currencies, said it has become the first to distribute data on trades to customers using the same blockchain technology that underpins the virtual currency bitcoin.
Blockchain, or distributed ledger technology, creates a shared database in which participants can trace every transaction ever conducted. Its proponents say it has the potential to shake up how financial markets operate.
It is part of the “fintech” sector that is beginning to catch the eye of regulators as big banks invest in uses of blockchain for critical market infrastructure such as settlement of securities transactions, bond trading and cross-border payments.
ICAP said it has used blockchain to feed customers “golden source” data needed for reporting trades to regulators or covering risks from trades, such as by posting the right amount of collateral or cash at clearing houses.
During a “proof of technology” run last month, data on forex trades was distributed over blockchain to nine participants, ICAP said.
Banks could save money in middle- and back-office functions by relying on the golden source data to meet different requirements, rather than having to repeatedly “re-validate” the trades in their own systems for each application, ICAP said.
“We believe we are the first to do this using distributed ledger and blockchain technology,” said Jenny Knott, chief executive of ICAP’s Post Trade Risk and Information unit.
“What’s really transformational is that the banks no longer have to do so much themselves.”
A bank is only allowed to access its own trades in the ledger.
ICAP said its distributed ledger system would be scaled to cover all, and not just new, trades to show that the data is reliable and give banks the confidence to turn off their in-house technology.
“What we are going to do now is work with our partner banks to develop parallel technology to add all asset classes and all trades,” Knott said.
Last month the global Financial Stability Board, a group of regulators chaired by Bank of England Governor Mark Carney, said it would start looking at how fintech innovations like blockchain are being used in financial markets.
While its use now is tiny, policymakers want to be ready in case it involves much larger sums of money, thereby creating so-called systemic risks.
(Reporting by Huw Jones; Editing by Mark Trevelyan)