Immediately after reading this, a colleague asked:
"How can a balance ever be not the sum of the transactions ?"
Which elides the fact that differing transactions have different states they can be in (and different levels of immutability). But once you get in the weeds dealing with this stuff is a real pain.
Therefore what tends to happen is ETL's where some middle-system imports the trader's and custodian views and tries to reconcile. Note these views are often only available after batch processes run at the end of the day ... The problems are ... tons:
- Even FIX/Swift etc. messages are prone to incomplete interpretation and mis-usage the latter hard to change once it's baked in. Setting up yet another format is a huge ask.
- Each end of the work invariably has a slightly different data model so even if one did get the data it's not like there's a memcmp of two structs at the bottom somewhere
- As I say blockchain w/ POW is not only slow, there are oodles of privacy concerns. And even if you tech'd that out blockchain would be a Merkle wrapper of something like a CSV/FIX/Omgeo/Swift message ... and what's the point then of all that crypto nonsense? Better to have a direct HTTPs connection, and skip the crypto work.
However, if counter-parties could somehow get messages from the exchange at the time the trade is done and forwarded something to the trader and counter-party (granted encroaching on the some $100 billion/yr custodian business) that might help. Indeed, other writers here make a good point: trading through exchanges is nice. Post-trade sucks.
My over-simplified version would just say “precise communication of even moderately complex facts is incredibly hard”.
And that’s human to human communication, of which system to system communication is arguably just an implementation.
Arguably even communicating with ourselves over stretches of time is non-trivial as experienced by anyone who has ever found a paper note or maybe a comment in code by one’s younger self only to scratch our head and wonder “wtf did I mean by that?”
Building distributed applications that involve multiple organizations is hard with today’s technology. For each application, all organizations must agree on the data encoding, transport mechanisms, and interaction rules, and all must implement their part of the interaction correctly, including authentication and authorization. Once implemented, such an application often becomes a silo: there is no general convenient, secure and privacy-preserving way to integrate such applications and compose the business workflows that they automate.
The big problem is bootstrapping the network; as you say, setting up yet another format (DAML in this case) is a huge ask. But we're starting to see the beginnings of a network, as in the next couple of years the Australian [2] and north-bound (i.e., mainland China) Hong Kong securities [3] will be accessible through DAML.
[1]: https://canton.io [2]: https://www2.asx.com.au/markets/clearing-and-settlement-serv... [3]: https://www.ledgerinsights.com/hkex-daml-smart-contract-stoc...
There's tactical steps too that can partially overcome the independent IT systems, say, getting the custodian to send data realtime, sending it realtime on the trader's behalf to the recon entity ... I'm not sure what custodial service provides think about that ... presumably they would if they could probably hampered by their own IT systems like the rest of us.
The final approach is what appears immediately above: traders and custodians --- generally any set of business entities N who need to compose data --- publish to a virtual shared DB. I'm gonna read the white papers and follow-up afterwards.
Like I said, I don't have a background in financial services myself, but there are people on my team who have vowed to never have to do reconciliation again. As you seem to wear the same scars, I'm very curious to hear your thoughts on the whitepaper based on your other good comments in the thread. Feel free to e-mail me (address in profile) or post here.
CHESS is definitely a complex beast. The go-live date has moved from 2021 to 2023, AFAIK at the request of the participants. To your question when it will be directly (as in, through DAML) used by all participants - I guess at the point where it generates enough value that it's advantageous for them to use it.