What Is the Primary Use Case for a Private Blockchain in Financial Derivatives Trading?
Private blockchains are primarily used to streamline post-trade processing and settlement. They create a single, shared source of truth for all parties involved, reducing reconciliation costs and operational risk.
This distributed ledger can securely record trade details, collateral movements, and margin calls instantly. It significantly speeds up the traditionally slow, multi-step process of clearing and settlement.
Glossar
Clearing and Settlement
Finality ⎊ Clearing and settlement, within cryptocurrency, options, and derivatives, represents the process ensuring the irreversible transfer of assets and associated risk mitigation.
Reducing Reconciliation Costs
Cause ⎊ Reconciliation costs in financial derivatives stem primarily from the necessity to manually or semi-automatically match and verify trade data across disparate, siloed databases maintained by multiple counterparties and intermediaries.
Distributed Ledger Technology
Architecture ⎊ Distributed Ledger Technology fundamentally alters traditional financial infrastructure by establishing a decentralized, cryptographically secured record of transactions.
Private Blockchain
Network ⎊ Private Blockchain describes a distributed ledger where the network participants are restricted, typically to a single organization or a tightly controlled consortium, and access to read or write to the ledger is highly restricted via access control mechanisms.