The Depository Trust & Clearing Corporation (DTCC) earlier this month unveiled a plan to put blockchain – or distributed ledger technology – at the core of post-trade processing for the $11 trillion credit derivatives market, and appointed IBM, Axoni and R3 to run the initiative.
Masters has become the highest-profile evangelist for the application of blockchain to wholesale financial markets, so the exclusion of Digital Asset must have been a blow.
To add insult to injury, the potentially transformative processing initiative is coming to the credit derivatives market, where Masters, in a previous incarnation at JPMorgan, was virtually synonymous with the marketing of default swaps as an efficient way to shift risk.
Digital Asset won a mandate to apply blockchain technology to US Treasury repo clearing and settlement from DTCC last year, and DTCC’s CEO Michael Bodson sits on the board of Digital Asset.
Those links, combined with Masters’ acknowledged expertise in the credit derivatives markets, might have made Digital Asset look like an obvious choice for a key role in the move to apply blockchain to default swap processing.
However, the obvious choice doesn’t always end up winning a contest, as Clinton can attest.
Bodson’s role as a key decision-maker for technology mandates who also sits on the board of Digital Asset is an example of the potentially incestuous nature of the emerging business of applying new technology to wholesale financial markets.
Some of this stems from the need to form partnerships to make technology initiatives work across the entire industry, or at least for meaningful sectors of the markets.
However, there is such as a high degree of overlap between different players in this emerging business that the potential for conflicts of interest is growing.
Digital Asset also features the chief administrative officer of JPMorgan’s Corporate & Investment Bank, the head of commodities for BNP Paribas in the Americas, and the head of product development for Deutsche Börse on its board, for example.
R3 – which won a role on the DTCC credit derivatives initiative that might have gone to Digital Asset – is itself a firm backed by a consortium of more than 75 financial institutions, so it has management of potentially conflicting interests built into its foundation.
David Rutter, the CEO of R3, has a different background to Masters. He was previously head of electronic broking at Icap and before that CEO for the Americas for interdealer broker Prebon Yamane.
There was once a divide between the patrician side of the wholesale markets, as represented by senior managers at top investment banks such as Masters when she was at JPMorgan, and the more plebeian brokers who relied on the goodwill of bankers to generate commissions.
The fortunes made by brokers such as Icap founder Michael Spencer long ago taught bankers that any haughtiness was misplaced, and technological change is now blurring those old divides.
That has created an open market where players must simultaneously compete and cooperate to succeed. When asked about missing the credit derivatives processing contract, Masters noted that Digital Asset is still working on repo reform for DTCC and commended DTCC’s overall push to use distributed ledger technology to benefit its customers, for example.
While apex predators such as Masters and Rutter adapt to a new competitive landscape, the far more numerous mid-ranking executives who simply want to make the most efficient use of new technology are struggling to find the best path for their employers and clients.
This has created a minor boom in financial technology conferences, which itself is feeding the blending of financial services with the information technology industry, where conference attendance is virtually mandatory.
An epiphany at a blockchain conference might seem unlikely, but it probably beats a day of compliance-heavy banking for many attendees and in a world of fixed compensation for bankers that might have an appeal of its own.
The following comment piece was submitted in response to Jon Macaskill’s column A Hillary Clinton moment for Blythe Masters:
Blockchain: Collaborate to innovate
February 28, 2017
Robert Palatnick of the DTCC says that with so much activity occurring across the industry, it is critical that all parties place standards at the heart of their DLT initiatives.