Horacio Barakat, VP of corporate strategy at Broadridge discusses the challenges and benefits of implementing DLT into the financial services industry

Episode 34 of The Scoop was recorded with Frank Chaparro, Ryan Todd, and Horacio Barakat, V.P. of corporate strategy at Broadridge. Listen below, and subscribe to The Scoop on AppleSpotifyGoogle PlayStitcher, or wherever you listen to podcasts. Email feedback and revision requests to [email protected].

In this episode Horacio sits down with Frank and Ryan to discuss: 

  • The challenges associated with implementing distributed ledger technology into the financial services industry 
  • Broadridge's strategy to roll out a DLT-based repo platform
  • The reasons why banks need to parter with fintech companies to innovate versus built it alone
  • How they pitch old school broker dealers on blockchain 

The transcript is provided for your convenience, please excuse any errors or typos resulting from the transcription process:

Frank Chaparro Ladies and gentlemen, thank you very much for joining me for what is a very special episode of the Scoop here in snowy New York City. That's right, we just saw some flakes touch the ground earlier today. We are joined by our very special guest, Horatio Barakat. He is a V.P. of corporate strategy for Broadridge, a global financial services consulting firm. And of course, I am joined by Ryan Todd, a researcher here at The Block. And we are going to be diving into some very interesting topics about blockchain, digital asset technology and, of course, the company that is Broadridge. Horatio, thanks so much for joining us. I guess the best place to start, I think our crypto native audience might not necessarily be aware with what your firm is doing, what your firm is all about. Let's start there. Let's start with brokerage. It's a massive publicly traded firm, well known in the financial services space. It touches many different corners of finance. How would you describe it to someone?

Horacio Barakat First of all, thanks for having me, Frank.

Frank Chaparro No it's my pleasure.

Horacio Barakat So Broadridge is a financial technology company. Basically, we provide financial solutions to the capital market industry, including firms like broker-dealers, asset management firms, wealth management firms. And we are also the leader in investor communications worldwide. So as you said, you're right. We are a large, publicly-traded company that actually provides critical services to the entire financial services industry worldwide, particularly I lead innovation and new product solutions for our fixed income technology group. And it is a platform that actually trades or processes most of the fixed income trades in the U.S. A large percentage of the trades go through our back-office processing, including 40 broker-dealers, including 19 of the 24 primary dealers. So that it gives you a sense of the scale that Broadridge has and the importance of Broadridge in the financial services industry.

Frank Chaparro The main reason why I really want to have you on the show is because I think what you guys are doing is so outside the scope of what is often talked about or pontificated about among the crypto pundits. When we think about what crypto can do, we think security tokens, which have really done not that much, or we think about the Bitcoin becoming a safe haven global asset, right? Or somebody tweeted today something about Bitcoin becoming the world currency. What I like about you guys is you're touching things like fixed income, you're touching the repo market. These are--I mean Ryan, you can chime in if I'm wrong, but I feel like those areas of finance, when it pertains to crypto and digital assets, aren't necessarily at the forefront. You guys have had some success in bringing firms into the fold to adopt some of these solutions, so with that said, let's talk about some of the projects you guys are working on in digital assets and blockchain technology.

Horacio Barakat That's a really interesting point, and then that goes to the strategy that we set out several years ago around our blockchain or DLT strategy. It was basically trying to find very, very specific use cases that could provide a significant step change in process improvement or significant value to the industry (number one), but number two, also areas where Broadridge has the network, the necessary network, the necessary volume of clients to actually increase adoption. There are many ideas out there. There were, there still are. But if you don't find areas where there is tangible value to be had, and you have the necessary client base or network to drive adoption towards that use case, then it's very difficult to make it happen. And that is what what we think we bring to the industry: bringing blockchain and DLT to reality by tangible use cases that are going to go live in the near future.

Frank Chaparro What's near future for you?

Horacio Barakat As early as the middle of next year.

Frank Chaparro Okay. So what will we see in 2020 out of Broadridge, mid-2020?

Horacio Barakat In 2020, you'll see the realization of a lot of hard work around the DLT, not only by ourselves but with our early adopter clients around this technology. We are planning to go live with our repo platform that we will be working at it for over two years now, close to three, with large clients, and we expect to onboard them by middle of next year. And the idea is to, as I said, tackle very interesting use cases from our lead as it relates to what I'm focusing on: the repo platform that we think is going to create significant value for the industry by generating or starting to create market infrastructure change around the repo market. 

Frank Chaparro So let's take a step back for a second. What are the infrastructure problems that are in the repo market today for the types of folks you're talking about, broker dealers, et cetera,?

Ryan Todd And what is the solution?

Horacio Barakat So let's start with the solution and what the problems that are solving, right? So we are creating a distributed ledger base repo platform, where market participants, usually broker dealers and and buy-side firms can actually enter, agree, accept, reject and settle all of the repo transactions. The way that we're thinking about that is creating a synchronized workflow amongst all the participants that are part of that transaction. So if you think about what what what a repo transaction is--and maybe this is something for the audience to go through--it is a short-term form of financing where one counterparty borrows cash from the other counterparty and provides securities as collateral for that. It usually happens overnight, so then the next day, you know, the reverse happens: that cash goes back and collateral go back to the original holder. So the idea is, you can you can see by my explanation that that is a very convoluted process with collateral and cash moving in both directions. It needs to have, you know, agreement through all the stages of the transaction, from entering the transaction, agreeing the transaction, selling the transaction, and then the off leg, which is the reverse of that transaction. So that's a very convoluted process. So by creating a synchronized workflow for all participants to not only agree on the terms of the transaction, on a single source of truth, on a single platform, but then be able to follow all the transaction with the same information of the contract and the same information or collateral and cash, provides significant efficiencies for all the market participants. And I think that's what we're after, and that's what that's what our early adopter clients are seeing as the benefits to the platform.

Ryan Todd Are those efficiencies or a reduction of time of settlement or is or is a transit--like what are the efficiencies, is it reduced costs? What what are those look like?

Horacio Barakat It is definitely everything centered about reduction in cost and operational efficiencies, increased operational efficiencies. So, just to name a few, you have--since everybody is working under the same similar under same workflows, there is no need for reconciliation, which is a huge expense for the entire capital market industry, not just repo, but in everything else. Since you're working on a single source of truth of collateral that are pledged for to receive the cash, it reduces or eliminates, hopefully, the fail component, and the trade fails that usually happen in industry, because you know what collateral is available, so then there's no failing the transaction, right? And then, obviously, limiting or reducing the movement of collateral between parties because collateral, obviously, you know, goes one way, but the next day, overnight, it comes back, as we talked about when we explained the repo transaction. So, all those operational efficiencies and reductions in cost actually become significant once you add them up, you know, for one particular client, and then as a whole, it becomes significant efficiencies for the industry.

Frank Chaparro Where does it start? Do you start with addressing a specific problem, saying, "Alright, you know, there are efficiencies that we can improve here, and then we'll figure out which technology or which technology stack we can improve with?" Or do you start with, "Okay, here's what blockchain can do; what are some of the problems that we can fix using it?

Horacio Barakat Well, we started with a use case because we always thought maybe we were--Broad is embedded in all these fixed income transactions, in the repo transactions that we process on the back office, on our back-office systems, so we always knew about this, you know, this pain point for the industry. So, looking into the distributed ledger technology made us realize that this was a perfect use for this technology. Basically creating a single source of transactions, of contracts, of collateral, and once that we realized that this is the great use case for this technology, then we went up, we went about and worked through, you know, a POC, a pilot, and then decided what type of technology we need. What what kind of model language we're going to use, what kind of ledger we're going to focus on for this particular use case. So we went--I think the progression of people took a lot blockchain and DLTs, that technology looking for a problem. We had a problem, and we found the technology that's going to help us solve that big industry problem.

Frank Chaparro How do you sort of view that argument of it not necessarily being able to scale to something that would be effective as a solution to some of the problems that are plaguing the financial services industry?

Horacio Barakat I think where they've commonly come from, and I wasn't part of that conversation, but usually that comment about blockchain DLT not being widely spread, changing the financial services industry as a whole, which was the early stages of the thinking, in my opinion, is because it is very difficult for the entire industry or a large percentage of the industry to create that network and that network effect that adopts a particular solution. It is like going to a party. It is very difficult. Are you going to the party? I don't know. Are you going? So nobody goes, right? Until--or everybody goes, or nobody goes. So breaking that cycle is very difficult. And that takes time and may or may not be successful. How we thought about it is the way for us to break that cycle is to provide very, very specific point solutions that will excite people that will incentivize people to join the party to actually use that solution. And then once you have the early adopter participants actually benefiting from that solution, the compounding effects of further innovation, or further evolution of that particular use case will potentially bring that overhauling change and disruption that people were talking earlier on. Very difficult to say if and when, but if you don't provide that initial stepping stone, it's very difficult to create.

Frank Chaparro It's really interesting. I like your party analogy.  So I was speaking with someone last night, we won't say who, but they're coming out with research with Forester, which is a well-known firm in the space. And so their point, one of the findings that they have here is for every company interested in a blockchain two start their own. I don't know if that's the exact stat, but it speaks to a point of: everyone wants to be the master of their own domain, whether and that's true of technology, and I think that's true of Blockchain as well. So, when you guys come up with something, and you're pitching it to clients, right? They all want to be differentiated, right? That's the whole idea, it's, "We need to be differentiated." How do you how do you get over that hump and say, alright, let's all sort of leverage the same thing, come around what we're doing here at Broadridge, don't necessarily want your own because it's not going to make you necessarily differentiated from your competition, but if we all enjoy the same pool, we can all benefit, does that make sense?

Ryan Todd And get them past the POC? Like it's easy to here's this free, come explore this with us. How do you get past that to the finish line?

Horacio Barakat I think for us it is a combination of our history, number one. And number two is the specific use cases that we thought we thought. So, number one, our history is clients they say they trust us. We have delivered, we continue to deliver solutions that are vital for their processes. So they know that Broadridge is going to deliver on whatever we promise or we get going or we start. So that is you know, I think it's very difficult for startups or early stage companies to have that level of credibility with and with the financial services industry as a whole, large, large corporations, banks, asset managers. So that is probably a bunch that we have given our history. The number two is very is to be very, very focused on the use case. And the use case cannot be--it has to be a combination of two things. It needs to solve for an industry problem, not a particular use case for a handful of companies, something that benefits products. It has to be an industry-wide pain point. It has to be something that gives the industry an idea that, yes, we all agree that this is a true pain point. So we are going to go behind it and try to solve it. We need to have that long term vision in mind. But then a sub-piece of that is creating. While you keep that vision in mind, you need to create an incentive, a particular use case to bring immediate benefits so people can say, OK, I'm going to have the benefits immediately without the need to invest a lot of time, effort and money that's gonna get me in the door with some specific benefits. But then keep in mind, the longer-term industry, wide pain point that we're solving, and I think the combination of those two, the history, of Broadridge, of delivering, plus, the way we're thinking about, you know, always with the long-term in mind, but focusing on specific pain points that derisk the jumping into that all right now, I that's what makes the handful of DLT solutions that we're working on a success.

Frank Chaparro Do you ever come to the clients with DLT-based solutions, and immediately not necessarily they shut down, but they're sort of like, well, I don't know if I'm sure, I don't know if I'm going to get on board with that.

Ryan Todd Yeah, what's the sales pitch?

Horacio Barakat Well, we had some you know, depending on the client, depending on the solution--

Frank Chaparro Old school broker deal, they go, "I don't want anything to do with anything that even rhymes with Bitcoin or blockchain."

Horacio Barakat One client recently started the meeting saying, if I knew this meeting was going to be about DLT we should have gone straight for drinks.

Ryan Todd Yeah, that's a real, that's pretty accurate.

Horacio Barakat Yeah. Probably you faced it in the past. But after forty five minutes or even less, after 30 minutes of explaining that this is what we have in mind, this is a long term plan, but this is the short term incentive for all of us to get into this industry, particularly the repo solutions specifically we're talking about. And half an hour later, this person was actually instructing a couple of people on the call, to start doing research as to what would be the benefits for themselves of implementing the solution. So we faced the, you know, the people that say DLT shouldn't happen, don't come to talk to me about this. But if you come in with a very specific value proposition for the long term and, you know, lower risk investment of time and resources that can provide you with savings in the near term, you definitely have their attention, there's DLT or anything else, any other product that would buy something your time with those views. They're willing to listen and everybody would be willing to listen not just about DLT but about anything.

Frank Chaparro So let's focus on a little bit more on that repo platform. And if we're looking to fast forward to mid-2020. Who's on it? Who's engaging with it? What are the KPIs that you're looking at for success once that starts rolling out full steam in the middle of next year?

Horacio Barakat We are planning on having, well, we will have a handful of clients on-boarded by middle of next year, and obviously that's not the definition of a network, as we discussed, it's just a handful of clients that are going to start benefiting from this platform from day one. And then once those early adopter clients start benefiting from the solution, then we continue, as you say, pitching to clients. But then the fact that you already live, clients are benefiting from it. Then the question is why? Why, why aren't I doing this? Why am I waiting on that? Other clients would feel that, "Well, if it works for them, why not for me? Let me investigate." So I think that rollout is going to get the ball rolling. Yeah, it's gonna be a snowball effect. As it relates to the KPIs, it's basically savings. You know, making the processes much more efficient, and cost reduction. The whole financial services industry is under a lot of cost pressure, capital pressures, so anything that can provide immediate benefits and relieve some of that pressure.

Ryan Todd Is a rough estimate of what that cost takeout is, like, what the percentage is?

Horacio Barakat Is there a percentage? Every client is different, yeah, but you're talking about the multiple millions of dollars for each client.

Ryan Todd Interesting.

Frank Chaparro And so, are there any firms you can share at this moment or do they also look the same? You said broker-dealers, prime dealers?

Horacio Barakat Asset management firms are now the two largest pools of participants in the repo market. I cannot name names as of now. What it can and it's public information, we have clients that have participated on our early pilots.

Frank Chaparro What were some of the takeaways from the pilot that, you know, informed how you are going to roll out the fully implemented platform.

Horacio Barakat The first one was our technology faith, right? The technology works to execute repo transactions with platform, right? That is to get the basic POC. And we went through that with clients because we didn't want to, you know. One thing that we never want to do is innovate in our conference room, right? What sounds great in a conference, then you take it to clients and, you know, it doesn't work, doesn't make sense. So the POC basically validated that the technology was suited for solving the pain points in the repo market. Then the next phase, which is more the pilot phase that happened now late last year, was validating that the work that we had created, were actually adding the value that we said they were going to create. And always on top of that it's the workflows. the idea of the throughput potential of the technology. All those checks had to happen during the pilot phase. And once we validated those with the pilot participants, then we set out to start productizing what we think is the solution that's going to be successful next year.

Ryan Todd You mentioned one of the decisions, uh, during this process is what type of a ledger to use. And it's always a question I always have is, uh, do you look to build this stuff in-house? Like, how do you, how do you view that long term? Is it partnering with someone that like a digital asset? Long term, do you see other banks, other financial service providers that are looking into DLT to look to build that in-house or continue to partner with other blockchain-as-a-service type companies?

Horacio Barakat For us, for Broadridge particularly, we are in the business of providing applications, business solutions, right? Basically what you would call "top of the stack" solutions. We are definitely not in the business of building our own ledger or even creating the modeling language to do that. So because that is not a core expertise, we wouldn't know how to, we wouldn't want to you know, we focus on the top of the stack business application. So we always took a view of being--especially in the early stages of the technology--being fairly agnostic as to what platform we should use. So we investigated, we tested, you know, all of the major platforms. And we actually, for the various use cases that we have, we're actually using various platforms. And that decision is always derived from: is this platform well suited for this use case? Not just one platform is good for all. As it relates to the particulars of the repo platform, we decided to use digital assets, model language and then deploy that application, modeling that language deployed on ono three's quarter ledger. And that is the stack that we are going to go on.

Frank Chaparro You guys put out--this was like a long time ago back when I was a starry-eyed infant journalist at Business Insider--

Ryan Todd He always brings us up every episode.

Frank Chaparro There's always one story that I can hearken upon, the halcyon days of my first financial journalism job. But then you guys put out a report that estimated there were huge productivity gains in sort of leveraging outsourced technology for banks, right? 20 to 30 percent. The title of the report was "Pathways to Profit: Deploying new technologies that mix in in-house developments and out-of-house developments." Can sort of translate into two benefits for, obviously, both sides. Looking at a higher level--you know, putting DLT aside, putting blockchain aside--do you think, from your seat, there's a better understanding on the street that banks can't go it alone necessarily? For things that are not necessarily differentiated, we can tap into a Broadridge, we can tap into similar firms. There are, you k\now, if you think of companies like SigFig on the wealth management side of the business, we can use their technology, and if I'm UBS, so can Morgan Stanley, they can use their technology too. And we all benefit from this tide that lifts all boats. Is there a better understanding of that now than there was when I wrote the story in October 2013?

Horacio Barakat Absolutely, there is. So, the industry as a whole is coming to the realization of neutralizing non-differentiating cost. The idea that financial services firms, they add tremendous value to the industry. The idea is there are some non-differentiating aspects that they shouldn't be focusing on and that they can rely on firms like Broadridge to provide at scale and high quality processing services that are non-differentiating to their to the higher level in the stack activities that they want to provide. I think a little bit is the realization of the quality of the service providers, Broadridge being one of them and the cost pressures that the industry is going through right now. Challenges on return on capital, cost pressures, regulatory pressures that increase their costs. So I think it is coming to a realization--that was always Broadridge's long term strategy and north star, and I think it has continued to happen.

Frank Chaparro I just want to correct myself. So the 20 to 30 percent productivity gain could be--would be the result of new technologies like AI, machine learning, not necessarily outsourcing to build out those technologies, but those technologies themselves. But you're absolutely right. The fact of the matter is there is cost pressure to do this themselves, so they kind of have to rely on firms like Broadridge, at least that's the underpinning thesis of this old report, I'm sure there's probably an update somewhere. There's a rock and a hard place. Again, we need to cut costs. Technology is the key to cutting costs, but we can't afford to implement the technology that would cut the costs. So what do you do? When you look at firms like JP Morgan that are spending trillions and trillions of dollars on--

Ryan Todd Billions. There is my one number correction for this episode.

Frank Chaparro Billions and trillions of dollars, 9 billion, I think--

Ryan Todd Yeah, it's insane. Like 10 billion plus annualized tech investment spend. To Frank's point, how do you view that? Is there competition for this? Do you feel like a race to get this to go live? Like, do you even worry about a JP Morgan IIN network?

Frank Chaparro That's exactly right. So in some instances there are firms that, you know, may not be in that same rock and a hard place. If they get there and they can do it, is that bad for you guys?

Horacio Barakat Well, we look at it as, first of all, we want to go live soon for the benefit of our clients. So clients say, "Well, how early can we get this live to start getting the savings?" Well, as soon as we can get live, right? So there's no thinking about the race to be first, but we want to provide these services to clients as soon as possible. And we know that we are serving our clients, and we are creating, with that long-term in mind, right, a solution or a platform that would create the infrastructure change that would benefit all our clients. If there are competing initiatives, you know, they're more than welcome. But we think that given the network that Broadridge has, and the ability to deliver products as an independent provider as opposed to a market participant, makes the platforms that we build suited for our clients. We are never going to be party to any transactions. We are going to provide a technology that would allow them to be more efficient. So, without worrying what happens outside, and with that strategy in mind, we know we're going to be successful.

Frank Chaparro So, I'm sure you guys are driven by your clients for the repo market project. That was probably, you know, it came to the forefront because of the client anxieties around engaging with that market and then coming to you and asking for a solution. I'm sure there are some things, maybe, that your clients might be talking about, maybe some fringe clients, and you guys might not be as interested in something that they're looking for. When it comes to DLT, are they asking about, you know, stable coins or are they asking about other things that you might find interesting personally but, as a firm, you might want to play a more wait and see approach?

Horacio Barakat We keep an eye on--as part of our longer-term strategy, we keep an eye on and we track all developments around cryptocurrency stable coins, DLT, AI. Every technology that could affect positively or negatively the financial services industry we have to track, and we do that. We have a large corporate strategy group that actually, you know, try to understand and evaluate the impact of those technologies. We have clients of ours are, you know, have their own stable coins, they are thinking about it. Some of them are publicly open. And we talk to our clients about what they're doing--

Frank Chaparro You ever say why, though? Why do we need a stable coin? So lame..

Horacio Barakat We don't get into why. I think we try to understand, you know, how they're doing it, how can we help them? If there's a role that they think Broadridge can play and help them with their strategies. But also our clients, they also have their--similar to Broadridge, they have to think about the impact of these new technologies for their own businesses. So with that in mind, they have to experiment. They have to know they have to do things that are out of the box for them also. And we see that as part of this stable coin and cryptocurrency experimentation.

Frank Chaparro What is the most out of the box thing that you guys are working on? What do you think about all of these like "oranges on the blockchain," "salmon on the blockchain?" There was a story on CoinDesk today: "UPS ships beef to Japan, tracked by the Blockchain." Does that touch your world at all? Do you have any views on it?

Horacio Barakat It does not. That is as far as you can imagine from the financial services industry, but if you think about those things, right? Assets being being tracked and being digitized and represented on a distributed ledger. When you think about the basis of it, it's not dissimilar to tokenized when representing securities or collateral, right? The fact is that they move securities, which move more efficiently than, you know, fish. But the concept remains. I'm not sure what the ultimate pain point or problem that they're solving by tracking fish.

Frank Chaparro There's probably none. How did you guys get introduced to Digital Assets? Let's plug them for a little while. When we did the podcast with them, I said Digital Asset throughout the podcast.

Ryan Todd It's the other way around. You had it right.

Frank Chaparro Did I?

Ryan Todd Yeah.

Frank Chaparro Well, DAML. How did you guys find your way down to them?

Horacio Barakat We are an investor in Digital Asset since 2016. So, yes, we we have a very close relationship with all the team there. We think very highly of their technology. We think that DAML as an open source model language fits very well to what we're trying to do now, particularly, you know, it is very well suited for multi-party workflows, so developers can think about the workflow, more so than the development aspect of it. Yeah.

Frank Chaparro So simplify the process. Simplifying the process so that you can be someone who is not necessarily, you know, a heavy coder, but, you know, if you're BizDev, then you can kind of better understand what's going on in the code. I think that's a--

Horacio Barakat Right. And the way that, you know, it is not just the technology, but the--if you probably talk to the staff there, probably if they were here in my seat right now--they have a lot of experience in capital markets and financial services industry. And that's why the way you combine technology expertise with, you know, with business expertise and financial services which they deployed into their DAML product.

Frank Chaparro Where does Broadridge's value-add step in when you're looking at a bank leveraging DAML for the repo market? How far can Digital Asset go? And then where do you guys sort of step in to service the clients to that next level?

Horacio Barakat So it is a modeling language, right? So how we are using it is we are developing our application, our repo application, using that modeling language. So we are building the app, if you want, using their language. And that's the value that Broadridge brings. We know--

Frank Chaparro Sure, that makes sense. So then why can't the Digital Asset or the bank client you have, or the broker-dealer your client have built that app on top of the language themselves.

Horacio Barakat They can. They can. The question is, first you need to have the business expertise, which, you know, as I explain the repo product, it seems very simple. But there's a lot of complexities from top to bottom, from, you know, front office to back office processing. And only, you know, not everybody and very few firms know that process as I know that Broadridge does. And number two, we go back to the potential of success, right? You need to be able to create a network for everybody to agree that this is the platform that can bring the benefits themselves, that they say everyone at once sold, right? If you're a party to transactions, if you don't have the network, it is very difficult for these to be successful. So between the business--the deep business expertise--combined with the existence of the network that we, Broadridge, have, it is very difficult for anybody else to replicate that combination.

Frank Chaparro I feel like, you know, you've been in the seat and you have to see the cycles, the Bitcoin hype, and Digital Asset has as well, right? When they came online raised millions of dollars from Wall Street it was with this promise that blockchain could do a lot of things on Wall Street. You guys have found a use case in the repo market. Where has it not been as effective? Where have you guys piloted things and it just didn't necessarily work? Or there's no way that this could work, traditional data bases or more ordinary systems are simply not good enough? Payments could be an example or it might--my bank is fine. I'm fine using Chase to send money, you know, ten dollars via Venmo to Ryan. There's no blockchain that can necessarily do that that much better, at least some would say, right?

Ryan Todd I think it's fair.

Horacio Barakat One of the areas that we initially tested and spent a lot of time on and really couldn't, you know, couldn't get it off the ground, and it literally was about, you know, not finding the right incentives, or people not having the right incentive to to get onboard was reference data. So the idea is--which is the--early on, obviously--and maybe there's some better ideas out there that we haven't come across or thought out. But when we went back then, two years ago, we're thinking, obviously, reference data: distributed data that people contribute to it, right? And it's all decentralized within your notes and you can access it, you can modify it. It was the prototypical, you know, "This is a slam dunk!" The problem was that, obviously, the reference data needs to be cleansed, needs to be updated, need to be corrected. So let's assume we are all around this table thinking about let's just get on board and let's create this reference data pool. The problem is what happens over time? Well, we couldn't solve for what's the incentive for everybody around this table to actually contribute or update that piece of data. So I know the data that is here has to be updated, right? I know it has to be updated, so why I'm going to take the trouble to update it? It is not ill-intended. It's basically, I need to set up a process to update this reference data for the benefit of everybody. So then you become into this, you know, lack of incentive to do it because while I have it, I leverage the other data and the pieces of data that I have I won't update because I don't have the time and I don't have the process to do it. So that's why the incentives are so important, to make sure that it's not just about the theoretical technical expertise or feasibility it's just the great incentive to create that platform.

Ryan Todd You have rich background and capital markets. Any lessons learned that you apply today? You've done M&A, public and debt offerings, private equity experience, yeah.

Frank Chaparro Private equity, I missed the boat. I mean, KKR, what is it--they're going to take over Walgreens, right?

Ryan Todd Yeah, potentially.

Horacio Barakat Yeah, I basically worked for many years enough for for many years in investment banking. On M&A, capital raising, and I think, well, I'm an engineer by education, so I have not technical expertise but technical knowledge, if you want, which I never put to use anyway, so..

Frank Chaparro I studied theology at Fordham, so I'm destined to go to heaven. I'm not pious, not practicing now, I'm just destined to go to heaven. And likewise, you'll always be an engineer, correct?

Horacio Barakat Correct, yes. So, pulling from from the investment banking background. Right. And I think one of the things that that is very well actually to two key things that I could translate into my new role in the new world of kind of bringing things from from nothing into reality. Number one is problem solving. The idea is you need to think about how are you gonna--what is the best way to solve a particular problem? And I think my work around M&A and capital raising helped me in that front. Number two, probably most importantly, is I know that the project-oriented way of doing things, you know. Creating something or starting something from scratch let's say in M&A a transaction that doesn't exist, that combined company, right? And move the process forward, you know, going through, you know, solving for problems, going through and finding creative ways of getting the job done and actually creating things and getting to end of job. And I think a lot of the DLT and, you know, projects lack that, consistency of follow through. If you thought it was a great idea and there's some roadblocks along the way, you need to think how to remove them, how to get it done and then get to a job. And I think that's something, that persistency towards the end goal, is something that really, you know, if you talk to any investment banker you see that's there, and I think that's actually very vital to get things done.

Frank Chaparro Most of the clients we've talked about in the context of this conversation have been asset management or broker dealers. Are there any use cases you see or efficiencies DLT can bring to the capital raising or investment banking corner of the street?

Horacio Barakat Yes, I think that one of the things that that could definitely change. And again, it's going to take time. Right. It is Native Securities, a digitally native security on chain. I know that there's a lot of some countries that are people experimenting on it. Singapore experimented with that. A couple of European banks issued digitally native security, particular fixed fixed income securities. I think that is the type of work that hopefully is going to bring--over time, you know--change and make the securities world better and much more efficient. And I think that it's early stages, but it has the potential to be highly transformative.

Frank Chaparro I wonder how that changes the role of individual banker, like someone who would have been in your seat when you were an analyst at Citi, or Wells Fargo. How might that change his or her role?

Horacio Barakat Well, if you think about the value of the broker-dealers in general, right? It is to provide access to capital to corporations. The form of that capital, it matters, but actually, that's your whole role, that's the value add of the broker dealer particularly, right? So, you know, a fixed income security that is a bond or is it a DLT native security? Well, for each--for the cooperation of the issuer, it's capital. So it is the ability--it actually makes, it distinguishes much more than the value added of a broker-dealer, being able to provide that capital to his or her client in whatever form, in the most efficient form possible. So I think it doesn't, you know, it doesn't remove it, it doesn't change it, because the value added is that broker dealers provide access to capital.

Frank Chaparro I guess I'd be remiss if I didn't press on...a lot of the conversation has focused on DLT and blockchain, but is there anything Broadridge can do to move forward the public blockchain space, cryptocurrencies like Bitcoin, or not necessarily?

Horacio Barakat In terms of moving, what we are doing it is we can provide similar to what we do today, right? We keep the books and records for our clients and the general ledger, the sub ledger. And what we do is if there is, well, it could be holdings for our clients or clients of our clients that are crypto-based, we need to have the ability to keep those, to basically provide a single unified view of books and records to our clients and the clients' clients. So I think that's something that gets us closer to that world. Are we going to be at the forefront of the crypto world? At this point, probably not.

Frank Chaparro That's interesting.

Horacio Barakat Correct. Yes. That's a very good point. We recently acquired--it was publicly announced--a company called Shadow that actually provides cryptocurrency services to the clients.

Ryan Todd Do you help with M&A at all? I know it's not your core job description, but do you ever assist Broadridge with that when it relates to acquiring crypto?

Horacio Barakat No, we have a full excellent corporate development team that handles all the acquisitions.

Frank Chaparro Just going back to that point that you made about the cryptocurrency space, specifically, do you have any clients that are very involved in this space, and what are some of the questions or concerns or problems that they're seeing that maybe you guys could potentially help with?

Horacio Barakat Well, we have clients that actually manage clients' money, right? And a lot of those holdings, or some of those holdings, are crypto holdings. So our clients need to have a way to provide a solution to those clients as opposed to them just, you know, partitioning their assets or actually going all together to another provider. So for our clients, it's critical to be able to provide those services. And that's why we need to--everybody needs to evolve to be able to provide those services, and our acquisition of Shadow that has some of those functionalities pushes us forward into that direction.

Frank Chaparro Well, I want to be respectful of your time, good sir. Thank you so much for sharing a lot of the work that you're doing and how you view this space. I guess, as a way of close, if there's one thing you think people might have a misunderstanding about when it comes to what DLT and blockchain can do for financial services companies, what might that be?

Horacio Barakat What I want to reinforce is the idea that as much hype as probably has been, you know, you go through the hype cycle, this DLT--solutions that are DLT based--are here to stay and to go live, and we are a live example of that. We are definitely going live early next year. So through the hype, there are solutions that actually, the ones that actually are really value added, that actually tackle industry-wide problems and can provide immediate solutions value to our clients, they are definitely going to be live. Not just Broadridge's, but many others.

Frank Chaparro And they are here to stay, these DLT solutions. You heard it here first from Horacio Barakat, the V.P. of Corporate Strategy over at Broadridge, diving into all things DLT. They have a crazy cool repo market solution that in 2020--we hope, we'll see, we'll have you back on to talk about it--will be changing a very interesting corner of the market that is, I think, getting paid attention to more and more, but maybe that's just because I didn't know what it was six months ago. But in any case, thank you so much for joining us. Keep in touch.

Horacio Barakat Thank you so much for having me.


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