Barclays Blockchain Solution to Streamline and Standardize The Derivative Market


Banks have long been interested in the distributed ledger technology (DLT), but standardization seems to be of the key problems preventing full-scale adoption. There is no doubt that blockchain and smart contracts have tremendous potential and capabilities. However, it is widely agreed that the technology cannot reach its full potential (in terms of adoption) in the absence of appropriate universal standards.

Barclays’ project head of the investment banking division, Lee Braine had this to say concerning the issue of standardization:

“But what we haven’t yet seen is adoption of common standards by the industry. What we ultimately need in the derivatives space is multiple market infrastructures, including multiple clearing houses, adopting a common standard for data formats, reference data, transactional data, and business processes.”

In other words, for adoption to become a reality, a standard method must be used. Basically, for blockchain technology to be successfully implemented, all the participants of a distributed ledger must speak the same language. Barclays, a British multinational investment bank has stepped up to help solve the problem of standardization by working with the International Swaps and Derivatives Association (ISDA).

In May 2017, ISDA proposed a concept known as the common domain model (CDM) which will help organize the processes used in reporting and presenting data irrespective of its platform; essentially solving the problem of recording and tracking data. The company sees the reliance on human interference in the current model as archaic and too intricate and believes that employing the common domain model will help banks simplify the process, cut costs, and increase efficiency and profitability.

Barclays views the CDM as an opportunity to provide a general foundation for new technologies like blockchain and smart contracts which in turn will help to remove restrictions by promoting consistency and interoperability. The British bank isn’t the only company supporting the common domain model. Axoni and R3, two blockchain startups have also backed the project. However, Barclays is the biggest company pushing for the success of the CDM.

Barclays’ test involved the creation of a smart contract that allows the bank to pre-populate the fields with values which are recognized by the ISDA. By utilizing this method, all the banks involved will possess the same document; eliminating the problem of discrepancy, pointless human interferences or interruptions. The participating banks can then decide to populate the fields with the terms of derivatives agreement, which would then be available online.

Barclays claims that if the proposed CDM is adopted, the efficiency gains would be around 25% in clearing space. However, the company has also admitted that the CDM won’t work unless banks rally behind the concept.

In an interview with CNBC, Lee Braine spoke about the potential of this project:

“If that is centralized in some way, then you can imagine the banks negotiating, finalizing and signing off those and then being held centrally in one place, such as a web service. That would reduce the challenges the banks have with legal documentation.”

Even though the CDM is still in its developmental stages, Barclays remains optimistic that when fully mature, ISDA CDM will pave the way for the adoption of distributed ledger technologies in the banking industry by providing a standard model that will define the processes involved in the trading and management of derivatives across all platforms.

David is a professional writer and blockchain enthusiast who caught the blockchain fever three years ago and has never looked back since then. His genuine interest in this emerging technology combined with his writing prowess allows him to create unique and engaging blockchain content.

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