Bank of America to use blockchain technology to settle stock trades

  • Bank of America has joined the Paxos Stock Settlement Network
  • The bank wants to reduce its stock settlement period from days to minutes
  • The Paxos System uses blockchain technology to settle stock trades

Bank of America has joined the Paxos Blockchain Stock-Settlement Network as it looks to improve its stock settling process.

BofA to utilize blockchain tech for stock trading

Blockchain technology has gained popularity in various sectors of the global economy. Among other things, it offers speed of transaction and transparency. As such, several companies are using the technology to improve certain aspects of their businesses.

The Securities and Exchange Commission (SEC) created the rules that govern the stock trading process. This includes how trade settlements work and how long they take which can be days.

Earlier today, Bank of America announced that it had joined the Paxos Blockchain Stock-Settlement Network. The move would allow the bank to improve its stock settling process. Mainly, the company would cut its settling time from days to minutes.

Bank of America is the second-largest bank in the United States. According to a Bloomberg report, it will join Credit Suisse Group AG and Nomura Holdings Inc.’s Instinet on the Paxos Settlement Service. The Paxos Settlement Service gained approval from the SEC in 2019. Consequently, this allowed it to settle equity trades for banks and other financial institutions.

Kevin McCarthy, head of financing and clearing at the Bank of America, said the bank has been carrying out internal transactions on the system over the past few months. If approved as a clearinghouse, BofA will be offering the service to its clients. “We can determine the settlement cycle down to T+0. We then can free up the collateral we’d have to post on an overnight basis. The return-on-assets in this business would improve, which has been a challenge,” he added.

Paxos disrupting the equity market

Evidently, Paxos’ adoption of cryptocurrencies could pose a threat to the Depository Trust & Clearing Corporation (DDTC)’s dominance of the market. At the same time, Paxos Chief Executive Officer Chad Cascarilla revealed an interesting fact. Currently, only trades logged by DTCC and by 11:30 a.m. are eligible to be settled on the same day. This means 75% of all traded stocks could potentially fail to be logged in a one day period. However, the Paxos System could change that. To be clear, it would connect investors directly to the market, using a version of the Ethereum network.

Bina Kalola, BofA’s head of global banking and markets financial technology innovation and investments, believes that the market is big enough for multiple settlement systems to operate. She added that Paxos’ collaboration with the DTTC is good for the equity market.

Blockchain technology has improved several operations in various sectors of the global economy. Of course, its adoption is likely to continue in the coming years as more companies find ways to streamline some of their processes.

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