Blockchain technology could improve efficiency when financial entities are reconciling
trades. Typically a bank will nominate one of its systems as the golden source of trade
data for any particular security. That golden source could be an in-house built system
or an off-the-shelf solution. Reconciling this against an external party (whether that’s
the trading counterpart or an industry third party) has drag and inefficiencies due to
system incompatibilities and processes. This leads to reconciling using the “best common
technology” – typically end-of-day batch files. A blockchain will mean that the agreed
trade data is already in-house, removing the need to reconcile externally, as the blockchain
has already done that in real time.


The use of blockchains could also help speed up payments between financial entities. As
blockchains can store data, they can also include code snippets that automate messages
and one-day payments, using the “if-this-then-that” logic. If parties can agree upfront on
the payoffs (usually this is agreed in term sheets written in dry legal language) and can
encode the payoff terms into the trade details itself, then there can be efficiencies when
trade lifecycle events take place, including error reduction and speed increases. These
code snippets saved onto blockchains are called “smart contracts”.

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