State Street Insiders Split Over Key Blockchain Use Case

It's not a secret that State Street, the giant U.S. custody bank, is looking to streamline the complex business of securities lending using blockchain.

A decades-old industry, securities finance today is a continual dance of manual reconciliation, involving a string of market participants and lending parameters, all of which has become even more complicated since the 2008 financial crash.

From the product development side, Nick Delikaris, head of global trading and algorithmic strategies, said that "The whole industry" is looking at a peer-to-peer version of securities lending, and blockchain based solutions are definitely on the cards.

Doug Brown, head of alternative financing solutions at State Street, said he sees potential value in using blockchain to enable P2P lending of securities, but cautioned that most of the market isn't ready for it.

Taking a step back, "Peer-to-peer" lending in this context means a client who wants to lend securities directly faces the borrower, as opposed to having a broker-dealer in the middle managing the whole operation.

State Street has a panoramic view of the securities lending landscape; the bank has two components under its roof that most people don't have, explained Delikaris.

"We also have the biggest agent lender in the world," he added, referring to State Street's business of lending securities to institutions on behalf of its clients.

From his front-office perspective, Brown conceded a P2P model might make it a little cheaper to borrow securities, while State Street's traditional lending clients might make a bit more on the transaction.

In other words, if the borrower in a P2P transaction fails to return the borrowed assets, the lender is out of luck, whereas in today's market an intermediary like State Street will cover the loss.

Other banks are forging ahead with securities lending using blockchain, but like State Street, they expect a long transition period.