Axoni, Major Banks Complete Equity Swap Pilot

Announcements, Blockchain, FinTech | November 21, 2017 By:

New York-based blockchain firm Axoni and ten other firms, including Citi, JP Morgan, and Goldman Sachs, have successfully completed a blockchain pilot for equity swaps processing.

An equity swap is an exchange of future cash flows between two parties that allows each party to diversify its income for a specified period of time while still holding its original assets. The two sets of nominally equal cash flows are exchanged as per the terms of the swap, which may involve an equity-based cash flow that is traded for a fixed-income cash flow. Beyond diversification and tax benefits, equity swaps also allow large institutions to hedge specific assets or positions in their portfolios.

Other participants in the pilot are BNP Paribas, Credit Suisse, Canada Pension Plan Investment Board, IHS Markit, Thomson Reuters, the International Swaps and Derivatives Association (ISDA) and Capco. ISDA provided equity derivatives documentation expertise and Capco provided consulting services.

Executed on Axoni’s distributed ledger software AxCore, the blockchain pilot saw participants process equity swap lifecycle events, end-to-end, testing automated lifecycle management and synchronization of single stock and portfolio total return swaps, as well as critical components regarding the deployment and management of the distributed ledger network.

Axoni said a 100% success rate across all tests was achieved. Key functionality tested included trade creation, position building, amendments, novation, termination, swap aging, stock splits and dividends, reporting, and private key management. A diverse set of non-functional tests were also conducted to assess the robustness of Axoni’s blockchain infrastructure. These tests covered privacy, security, network health monitoring, node management, and network performance – with real-world throughput volumes successfully processed by the network.

The working group also collaborated on a governance framework that can be used to oversee and manage a production network. The governance framework was tailored to networks with distributed infrastructure in order to create an opportunity for increased agility, cost efficiencies, and transparency.

Axoni CEO Greg Schvey said that equity swap data is infamously complex and difficult to manage, making it a terrific fit for distributed ledger technology.

‘We’re delighted to have reached another key milestone alongside our partners on this project and grateful for their collaborative efforts to demonstrate how powerful this tech can be,” said Schvey.

The pilot was a continuation of an initial proof of concept. In October 2016, Axoni  and its partners successfully tested a smart contract prototype for managing affirmations and post-trade lifecycle processing for over-the-counter (OTC) equity swaps.