The future of Wall Street infrastructure took a major step for this month.
The depository trusts, including corporations, successfully executing real production trades using digital tokens backed by actual stocks and treasuries held at the DTC and more than 30 top financial firms, as well as digital tech providers took part bridging traditional giants like BlackRock, Goldman Sachs, JPMorgan, and Citadel with crypto native infrastructure leaders like Chain Link and Fireblocks.
They did prove that traditional assets.
Can live on a blockchain for instant rates as well as margin calls and stock lending ahead of DTCC's official October launch.
We're here to break down what this means for global markets is Tom Sullivan, managing director and head of digital asset solutions at DTCC.
Tom, great to have you here.
Thank you so much for joining me.
Thank you for having me today.
Well, there has been a lot of focus on that July 15 test.
So tell us about the takeaways.
Sure, so the takeaways are few.
We were able to bring a huge cohort of the market together to be able to enable blockchain technology to deploy our tokens in production.
That was huge.
And as you mentioned, the number of firms who were involved, they range from the largest financial institutions to the most nimble, agile blockchain firms.
And I know that there is an hour by hour, minute by minute play on the DTCC website for what transpired, but in terms of timeline, Understand that you're looking at an October launch for this.
So between now and October, what are your plans?
So we really are at the point now where we've demonstrated what can be done.
We've laid out a number of use cases, and it was really driven by what the market wanted, what our members wanted, and what they really wanted to be able to execute, and we did that.
And so now we're really gearing up for the launch.
We're opening our testing environment in the near future.
We intend to bring on more firms.
So of course, as you've seen.
The excitement in the market has been pretty big, and we've gotten a lot of inbounds from additional clients who want to be able to join.
And importantly, what we did in July was somewhat scripted, although it was production.
We planned in advance the transactions we're going to do.
When we open the doors in October, that won't be the case.
It will really be the market driving the types of activity they want to do, on which blockchains they want to use, and really moving it forward in a more organic way.
And I do want to get your perspective when it comes to the technology.
So the blockchain.
So for viewers out there who may not be familiar with this whole process, give us an understanding of the technology underpinning it.
Sure, so blockchain is really simply a shared ledger.
It's an infrastructure where information is shared between parties and it's driven by something called smart contracts, and smart contracts are a way to automate movement of activity.
So in the traditional world, we operate in a messaging-based messaging-based system where data moves from point A to point B.
And in a blockchain world, data can interact with each other and can be programmed in a way to move not only information but assets.
So when it comes to institutions and using this process, how much time do you think will actually be saved through this process?
Sure, so as we sit here on the floor of the New York Stock Exchange and the market opens in, I don't know, 20 minutes or so, all the millions of trades that happen at the open will settle tomorrow, and really the settlement cycle today is measured in days.
And so there's good things to that.
Today DTC operates a clearing mechanism where we net much of the activity and there's benefit to the market.
But much of the market, as I mentioned, is measured in days, so repo happens on an overnight basis, securities lending as well.
And what we were able to demonstrate a few weeks ago was that we can do this and compartmentalize to minutes where you can have transactions settled in near real time.
You can have repos that are not just overnight but 15 minutes or minute increments, and that really is an unlock for the market.
And when we're talking about tokenization, of course, institutional adoption as well as investor protection. is key here.
So walk us through this concept of the digital twin.
Sure, so a digital twin really means that the asset that sits in traditional form on our books and records is exactly the same as the token that's on a blockchain.
Effectively, the blockchain becomes an extension of our books and records, and DTC as a CSD, a central Security depository, offers trust.
Trust is in our name and really we maintain the entitlement rights.
They are the same as a traditional form as they are a tokenized.
And again that really brings the market the ability to have liquidity wherever they want it and we are talking about a highly regulated industry.
So as you count down to October, walk us through the operational as well as the regulatory steps that are necessary.
Sure, so in some ways the regulatory steps have already been taken.
We received a no action letter from the SEC last December and that spelled out in great detail what it is we could and couldn't do, and it included both the range of.
So it's really a wide range of assets.
So the Russell 1000, the makeup of the Russell 1000, ETFs tied to major indices, as well as US Treasuries.
So it's really a substantial portion of the market that's included.
But also in that no action relief, it spells out the time frame for which we can operate.
So once the clock starts ticking in October, we have 3 years to be able to build and grow and make this a success.
And finally, before I let you go, as you reflect on that July 15th.
Experiment.
Give us your take on some of the surprises and what you learned from them.
So really one of the surprises is that it almost went perfectly to a T.
We really were able to execute all the transactions from the time we started, so it was 8:30 or so in the morning to about a little afternoon.
And the sequence of activity really went quite smoothly.
And even when things happened, this is the speed of the internet where if something needed to be adapted or changed, we added a new wallet address for a client.
We can do that in real time.
And so we were able to demonstrate both that yes, we can be successful in executing these transactions and yes, we can move money and securities at the speed of the internet.
And of course when we're talking about the long term impact, we're not just talking about the second half of 2020.
But also 2027 and beyond.
So what do you think the impact will be once this launches?
Sure, so we're really expecting a number of things to happen over the course of time.
One is when we get to the launch, it will really be an incremental process.
So we will add features and functions along the way.
We need to do things in a very secure and sound way, but we're expecting collateral management to be the first unlock, and that really comes down to unlocking trapped liquidity and to be able to move money.
Assets more quickly and so that's the first thing that we expect will scale, but we also see a push towards retail adoption where there's a real desire to have a wallet-based infrastructure for retail assets to have the same assets regardless of what type of asset it is to sit in the wallet, whether it be crypto, whether it be securities, whether it be digital cash.
And so we're seeing that as a driving factor for adoption into 2027.
Well Tom, I appreciate your time.
Thank you so much for joining us today here at the New York Stock Exchange.
It's been a pleasure.
Thank you.
Thank you.
