Pirum, a prominent securities finance firm, revealed on Monday that it is diving into the world of distributed ledger technology (DLT) to enhance its securities lending and repo solutions. The company known for its post-trade automation services processes an astounding two million contracts daily, amounting to a staggering $3.5 trillion. This foray into DLT marks a notable shift in Pirum’s approach to technology, with the UK branch of the company reporting revenues of £29 million ($36 million) last year and profits of £8 million ($10 million).
Integration and Tokenized Assets: A Pragmatic Approach
According to Ledger Insights, Pirum’s stance towards DLT may not be one of wholehearted enthusiasm, but it’s not dismissive either. The company is open to integrating with DLTs utilized by its clients, recognizing the value it can bring to tokenized assets. While traditional stock lending and repo operations may not see immediate advantages in DLT, the company’s strategic outlook acknowledges the potential within specific niches.
Aiming for the Golden Record
Pirum embarked on these DLT trials with a clear objective: to establish a golden record of trades. In pursuit of this, the firm engaged various client and fintech working groups to engage in lively discussions regarding the advantages and disadvantages of DLT technology. This concerted effort reflects Pirum’s commitment to staying at the forefront of financial innovation since its establishment in the year 2000 in London, UK.
Addressing Pain Points and Reconciliation
One of the main reasons behind Pirum’s initial hesitance towards DLT lies in its already effective solutions for addressing certain industry pain points, including automation of the reconciliation process. DLT, in its essence, aims to eliminate the need for reconciliation, which Pirum has already achieved to a significant extent. The company boasts a real-time post-trade service that achieves straight-through processing for 95% of trades, a figure that rises to an impressive 99.8% when considering the full suite of services across vendors.
DLT and Automation Synergy
While Pirum might not see DLT as a standalone solution, the company acknowledges its potential when combined with automation solutions and smart contracts. This synergistic approach can effectively address any mismatches, ultimately leading to the creation of a golden record. Pirum understands that adopting new technology should yield incremental benefits that outweigh the associated costs, aligning their approach with sound commercial logic.
Challenges and Prerequisites for Integration
Pirum’s focus on the challenges of DLT encompasses coordination, cost management, risk management, and functional performance. Recognizing its role as a connector to various industry solutions, Pirum sees the need to integrate with industry-wide DLT systems. In their trials, they tested Enterprise Ethereum with the aim of providing customers with the flexibility to interact with DLTs without complete reliance.
Tokenized Assets and Beyond
Notably, Pirum finds DLT particularly appealing in the context of tokenized assets, where the benefits of adoption are more evident. Additionally, the company expresses interest in exploring DLT for standard settlement instruction management, recognizing the value it can bring to the industry.
The exploration of distributed ledger technology by Pirum represents a dynamic response of securities lending and repo firms to disruptions. While they may not fully embrace DLT for all aspects of their business, their willingness to integrate with client-driven DLTs and harness the technology’s power for tokenized assets underscores their commitment to embrace innovation in the financial sector.