Northern Trust appears to have stolen a march on the other major custodian banks ahead of the ASX’s plan to become the first stock exchange in the world to introduce distributed ledger technology for its trading system, with the successful application for two patents for aspects of its technology.
The patents follow nearly two years of work by Northern Trust in the private equity space starting with portfolios in Guernsey, which went live with a client portfolio last year. It has been studying blockchain for about four years.
“We identified some unique technology components and we wanted to protect those,” according to Justin Chapman, the firm’s global head of ‘market advocacy and innovation research’. “But we’re not a software company; we’re not looking for patents for profit,” he said, pointing out the democratic nature of distributed ledger technology, more commonly known as blockchain, and the collaborative nature of the development work going on around the world.
The patents’ wording is a mouthful. They are:
- Digital Identity Management – Systems and Methods for Digital Identity Management and Permission Controls Within Distributed Network Nodes, U.S. Patent No. 9,992,022, and
- Digital Meeting Management – Systems and Methods for Generating and Maintaining Immutable Digital Meeting Records with Distributed Network Nodes, U.S. Patent No. 9,990,504.
On its relevance for the ASX trading system, scheduled to start, by the end of this year, a staged program to replacing CHESS, Chapman said: “We have a lot of learnings that we are sharing with the market. We have a team working with the ASX and other partners. The findings can be leveraged by others. Australia is a very important market for us so we need to be fully engaged.” One of the team members is Danielle Henderson, the Sydney-based Asia Pacific head of market advocacy and innovation research.
Northern Trust chose private equity as its first asset class because even though it is a complex asset class, Chapman says, with his firm working with 48 regimes around the world, it tends to have a lot fewer investors and counterparties than, say, a global listed equities portfolio.
On the likely take-up, which is expected to eventually become compulsory for ASX customers, he said Northern Trust had visited or spoken with more than 150 clients and fund managers. “When push comes to shove, some firms may rather wait and see, but they are generally positive. There will be a little bit of play around timing.”
He added that blockchain was “not changing the world but a significant enabler to improve how we manage our businesss – it’s a database which is a known technology.” Our products will use both blockchain and “non-blockchain technologies” together to deliver solutions.
Northern Trust’s blockchain development is part of a broader digital strategy for asset servicing which includes robotic processing, artificial intelligence and the proactive deployment of emerging technologies.