Out-Law News | 09 Mar 2016 | 5:05 pm | 1 min. read
R3 said that 40 banks participated in the trial which involved trading assets over distributed ledger technologies it managed but which were built by five different providers.
"[The banks] evaluated the strengths and weaknesses of each technology by running smart contracts that were programmed to facilitate issuance, secondary trading and redemption of commercial paper, a short-term fixed income security typically issued by corporations to raise funding," R3 said. "Each of the distributed ledgers ran a smart contract based on identical business logic to enable the banks to accurately compare the difference in performance between them."
R3 said the trial "marked an unprecedented scale of institutional collaboration between the financial and technology communities" and said that it plans to further "test and develop applications based on distributed ledger technology for the financial services industry" in the coming months.
David Rutter, R3 chief executive, said: "This development further supports R3's belief that close collaboration among global financial institutions and technology providers will create significant momentum behind the adoption of distributed ledger solutions across the industry. These technologies represent a new frontier of innovation and will dramatically improve the way the financial services industry operates, in much the same way as the advent of electronic trading decades ago delivered huge advancements in efficiency, transparency, scalability and security."
Financial services and technology law expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com, said never before have so many banks and technology companies worked so closely together.
"Both banks and technology companies are no doubt looking for ways to maximise the value that their involvement in this project could bring to them as separate participants," Scanlon said. "Their blockchain strategies will need to be informed by the approach adopted by regulators to the development of distributed ledger technologies, particularly if any closed access systems are being contemplated."
"If regulators follow an ‘open access objective’ in relation to how blockchain technology is used, the issue of who bears the cost for maintaining the technology will need to be addressed as will the question of its value to financial services businesses beyond the efficiency savings they gain from using it," he said.
In January R3 reported that 11 banks had connected to a "private peer-to-peer distributed ledger" it manages and had "simulated exchanging value, represented by tokenised assets on the distributed ledger without the need for a centralised third party". The banks involved in that simulation were Barclays, BMO Financial Group, Credit Suisse, Commonwealth Bank of Australia, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit and Wells Fargo.