SYDNEY Blythe Masters, the banker widely credited with inventing the credit default swap, has set her sights on a new target for innovation and disruption: Australia's securities trading infrastructure.
Australia was the perfect launching pad for a new securities settlement platform based on so-called "distributed ledger technology", or blockchain, Masters said at a business forum in Sydney.
Masters' company Digital Asset Holdings (DAH) is working with the Australian exchange ASX on a blockchain-based technology that aims to slash settlement times and streamline risk management, market supervision and back-office compliance for market participants.
"Australia is the perfect environment for this type of project," Masters said. "The project the ASX is running has the potential to be one of the first successful projects of this type in the world."
Masters said DAH was looking to prove in Australia that so-called "distributed ledger technology" could replace the traditional databases that underpin securities settlement.
ASX has invested A$15 million ($11.39 million) to buy a stake in DAH as it develops a potential replacement for its legacy CHESS settlement infrastructure.
The ASX and DAH are hoping that blockchain will slash settlement times and streamline risk management, market supervision and back-office compliance for market participants. Masters said this type of model could improve the security of trading infrastructure and reduce the cost of running settlement infrastructure by 50-70 percent.
The ASX's goal with its investment in DAH is to move to a model where the ledger has enough flexibility to allow individual trades to operate on different settlement time frames.
The data in a distributed ledger can be heavily encrypted, which Blythe said would allow the system to support complex levels of user access for the various parties in the securities trading chain.
Masters said the lack of fragmentation in Australian markets, with centralized clearing and settlement, made it an ideal location to test these ideas over the next 12 months. She also said the support from regulators such as the Australian Securities and Investments Commission (ASIC) made Australia "very attractive" to innovators and startups.
ASIC is hopeful that with the move to blockchain-based settlement, investigations into suspected market misconduct could be much faster, simpler and cheaper.
(This article first appeared on Thomson Reuters' Regulatory Intelligence platform; risk.thomsonreuters.com; Reporting by Nathan Lynch)
(Editing by Muralikumar Anantharaman)