Cloud trumps blockchain: DTCC’s TIW goes live, and no one’s choosing the DLT option

The Depository Trust & Clearing Corporation’s long-anticipated re-platforming of its Trade Information Warehouse (TIW) project went live in October 2022. The service has been delivered on cloud technology with support for distributed-ledger technology (DLT) capabilities at the access layer. It would appear, though, that no one is interested in connecting through the latter.

Three sources with knowledge of the re-platforming told WatersTechnology that so far, all clients have connected to the cloud-based TIW, while none have connected via DLT. The DTCC would not directly confirm whether any user—of which there are approximately 4,000 clients representing about 69,000 accounts using TIW—is using the DLT option.

“DTCC’s TIW has been delivered on cloud technology, with support for DLT capabilities at the access layer, which clients would be able to leverage at their discretion, a feature which we are currently exploring client appetite for,” Chris Childs, managing director, and head of repository and derivatives services at DTCC, and CEO and president of DTCC Deriv/Serv, tells WatersTechnology in an email.

“The new TIW platform has been developed to support DLT capabilities. If there is a demand, clients will be able to access the TIW via DLT nodes.”

The TIW is a centralized electronic database of records of cleared and bilateral credit default swap (CDS) contracts outstanding in the global marketplace. Clients who want to access DLT capabilities on TIW can do so at the access layer and test in a user-acceptance testing environment beforehand, Childs says.

The cloud option is live and all of those approximately 4,000 clients “have been migrated and are now leveraging the cloud-based TIW platform,” he says. As a result, over 900,000 new trades and 1.6 million post-trade events have been processed by TIW since the October go-live, “[which is] in line with expectations,” he continues.

This development could signal that appetite for DLT use in industry-wide projects within the capital markets is waning and that the tech is considered more of an option than a must-have at this time. It is also further evidence that every step away from DLT may be a step toward cloud technology.

If not now, when?

In November 2022, the Australian Securities Exchange (ASX) announced it would reassess all aspects of its Chess replacement project, citing “significant challenges” with the platform’s design and the ability to meet ASX’s requirements.

Barely a month later, Symbiont.io, a software company providing blockchain services to financial institutions, went belly-up as it filed Chapter 11 bankruptcy protection to “pursue strategic business alternatives and maximize shareholder value.”

There’s also the general chaos in the crypto world, following the collapse of the infamous crypto exchange and crypto hedge fund, FTX, among others.

And there are signs that the industry has generally soured on the use of DLT—of which blockchain is just one type.

If [DLT] was going to make a difference, why hasn’t it made a difference?

Virginie O’Shea, Firebrand Research

Virginie O’Shea, founder and CEO of Firebrand Research, says in 2012, the industry was more “gung-ho” about DLT.

But since then, the technology has not achieved much. “So people are like, ‘Well, if it was going to make a difference, why hasn’t it made a difference?’ And there have been a lot of shuttered projects as well. Not just the ASX one; there have been loads. It’s in the hundreds, I think, across industries as well as financial services,” she says.

Other sources WatersTechnology spoke with share similar sentiments.

“DLT is a technology that people are maybe 25%–30% ready for,” says a head of product at a London-based risk and compliance software provider. “In their heads, everyone loves the idea of it, but when it comes to the practicalities of actually using it, there are things like coding languages, security, and information security that they still don’t have their internal processes or skills set up around.”

These requirements, particularly for industry-wide projects, can be complex and costly, as was the case for the ASX, which had to “derecognize” costs amounting to A$250 million ($168.3 million). Also, they may take longer than participants are prepared to wait, as the Chess go-live date was repeatedly pushed back.

The TIW project had also been delayed several times. The DTCC first announced in January 2017 that it was building the next-generation TIW, moving its mainframe application to a DLT framework to “drive further improvements in derivatives post-trade lifecycle events.” Its initial go-live date was set for 2018.

But by September 2018, that date had been pushed to the first half of 2019. And then, by early March 2019, it was looking more like the end of 2019. 

The deadline was once more pushed to March 2020 due to client requests. At the time, Jennifer Peve, managing director of business innovation at the DTCC, told WatersTechnology that a core challenge of the technology is its ability to run complex processes, such as the structuring of credit events for credit default swaps. 

DLT is a technology that people are maybe 25%–30% ready for

Head of product

Peve, who in June 2020 was a guest on the Waters Wavelength Podcast, said about the TIW project: “It’s coming along well. We’ve actually gotten through all the development and QA in terms of the distributed-ledger platform, and we’ve completed our testing with our industry partners, dealers, buy-side firms, etcetera. We’re now just working through with our other partners and stakeholders to identify a launch date.” 

A chief risk officer at a post-trade services company for OTC markets, referring to the numerous delays in the project, says: “The key thing is, with these critical pieces of industry infrastructure, you can’t go live with any sort of material outstanding issues that you know about, right? Because you just create havoc in the industry. It’s better to be later and functioning properly than earlier in creating both operational challenges and also regulatory challenges. People have regulatory commitments to meet, and if the platform is causing issues, then that’s no good at all.”  

The DTCC had been an early proponent of using DLT within the capital markets. Other than its efforts in leveraging DLT capabilities for the TIW, it also has Project Ion and Project Whitney. Project Ion is being developed as an alternative settlement platform using DLT. It has been in parallel production since August 2022. On the other hand, Project Whitney became the building blocks of the DTCC’s Digital Securities Management platform, which aims to standardize and bring efficiency to the private markets.

Sources for this story agree that the DTCC has been forward-thinking in testing use cases that might benefit from DLT, but that the technology is not a catch-all for all the problems in the capital markets.

A global head of risk products at a data vendor, who was also experimenting with putting lifecycle information on chain at their firm to make it more transparent for counterparties, says: “I think we’re basically encountering the same problem—it’s a good idea in theory, but I think the market is still unsure about full adoption.”

However, some believe that using DLT as a solution is just a hammer looking for a nail.

“DTCC has been fairly aggressive on DLT pilots, but as has often been the case, it has been a technology looking for a solution,” says a COO at a post-trade securities and derivatives processing technology firm.

Arjun Jayaram, founder and CEO at Baton Systems, a company that is also using DLT to “redefine” post-trade processes, admits that while his personal information on the TIW is dated, DLT is the wrong tool to use for any centralized information warehouse. “DLT is a great platform, but only for some problems. In particular, a centralized data warehouse should not use DLT,” he says.

Instead, to build a data warehouse, one should use the “best” data warehousing tools available combined with analytics. “That means highly reliable and secure APIs, proper cyber controls, business continuity planning and disaster recovery capabilities for operational resilience,” he says.

Forecast: mostly cloudy

The DTCC, along with Osttra—whose confirmation system TradeServ is the primary confirmation system for the CDS market—went live concurrently in October 2022 after close coordination with industry participants, including dealers, buy-side firms, central counterparties, vendors, and service providers.

According to information on the TIW website, the DTCC states that the standardized nature of the process flows and data models makes credit derivatives an ideal test case for DLT and provides an opportunity for DTCC to test the technology at a “meaningful” scale.

“Bolstered by common data standards and governance, a DLT-based TIW can enable the industry to process and report to regulators from the same data record,” the website states.

But those 4,000 users are saying it’s cloud—at least at this point—that is the better option to process and report data.

When asked if DLT, while compelling as a technology, has yet to mature enough for firms to feel comfortable using it, Childs says, “DLT continues to be in the early stages of its development and adoption, and the industry still has much to learn about the technology.”

DTCC continues to believe that DLT holds potential to reimagine and transform how markets operate

Chris Childs, DTCC

He adds that, comparatively, the first use cases of the cloud were considered in the early 1990s. “It is only recently that cloud computing has become mature enough to be considered a mainstream option for hosting applications and processing workloads across the financial services industry,” he says.

Childs, who is responsible for the development and daily operations of Deriv/Serv products, which include DTCC’s GlobalTrade Repository (GTR) services, TIW and DTCC Report Hub, says the DTCC is technology-agnostic.

Specifically for the TIW service, he says, “cloud offers the broadest accessibility for firms using the service, among other benefits.” For example, cloud capacity and compute-on-demand capabilities “have greatly improved”, which allows users to tailor their solutions based on need and market conditions, which, when architected correctly, has proven to be more cost-efficient.

“Furthermore,” Childs says, “the TIW architecture created in the cloud is highly scalable, providing a strong foundation for future platform modernization and growth. Finally, hosting the TIW in the cloud has facilitated more frictionless data integration points, helping firms to meet the rapidly evolving post-trade requirements in the global derivatives marketplace.”

His sentiments on the cloud mimic how other financial service providers and participants view the cloud. As firms struggle with adapting their legacy systems and platforms to deal with higher volumes of trade, gain better insights into their data, and provide a more seamless experience to their end clients, the cloud is helping them remedy those challenges.

Again, Childs stresses that as a critical market infrastructure provider, the DTCC is technology-agnostic, and the DTCC still believes that DLT will prove valuable as a technology in the future.

“Our focus is on developing innovative strategies that leverage technology to improve processes, enhance efficiencies and reduce cost and risk, serving the direct needs of our clients and the wider industry. DTCC continues to believe that DLT holds potential to reimagine and transform how markets operate when applied to specific use-cases meeting strict criteria,” he says.

A head of rates and credit at a post-trade solution provider says they have yet to see a use-case where using DLT is a “no-brainer.”

“I think having an imprint of a transaction that people can leverage and say that’s the truth, and then drive processing, or the concept of smart contacts—I think everybody wants to move in that direction,” they say, “but I don’t think it has to be on distributed ledger.”

With additional reporting from Anthony Malakian, Rebecca Natale, Nyela Graham, and Theo Normanton.