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Bank of America to use blockchain technology to settle stock trades

bank-of-america-to-use-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 adoption in various sectors of the global economy, thanks to its numerous features such as speed of transaction, transparency, and more. Several companies are now using the technology to improve certain aspects of their businesses.

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

According to a Bloomberg report, Bank of America, the second-largest bank in the United States, will be joining Credit Suisse Group AG and Nomura Holdings Inc.’s Instinet on the Paxos Settlement Service. The Paxos Settlement Service gained the Securities and Exchange Commission’s approval in 2019, allowing 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 it is 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

Paxos’s adoption could pose a threat to the Depository Trust & Clearing Corp.’s dominance of the market, which has lasted for over 50 years. Paxos Chief Executive Officer Chad Cascarilla revealed that only trades logged by DTCC by 11:30 a.m. are eligible to be settled that day, with 75% of all stocks traded failing to be logged on the same day. However, the Paxos System changes that by connecting investors directly 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 is partnering with DTTC, and the collaboration is good for the equity market.

Blockchain technology has improved several operations in various sectors of the global economy. Its adoption could continue in the coming years as more companies find ways to streamline some of their processes.

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