Completing post-trade settlement on distributed ledger technology (DLT) is possible and could reduce counterparty risk, according to a report by a group of Canadian banks, which explores the opportunities and challenges of DLT for the integration of financial markets and the Canadian economy. The study, published by Payments Canada, the Bank of Canada, TMX Group, Accenture and R3, presents the findings from the third phase of a collaborative research initiative called Project Jasper. The project, run by Payments Canada, the Bank of Canada and TMX Group, used a proof of concept that allowed clearing and 'delivery versus payment' settlement — and when more broadly implemented, would reduce counterparty risk and free up collateral — demonstrating that it is possible to complete post-trade settlement of netted and novated transactions on a DLT platform, while preserving privacy for market participants and their transactions.
The report’s other key findings include:
- A distributed ledger technology platform can be used for a payment and securities settlement system. The proof-of-concept platform constructed was able to process pledge, transaction and redeem functions in a manner designed to address the privacy and scalability requirements of the Canadian system. The platform was also capable of handling the different participant sets so that each participant was only capable of performing those functions for which they were authorized.
- The loose integration framework of the project left the two authorities involved — the Bank of Canada for cash and Canadian Depository for Securities for equities — in full control of their respective instruments or tokens.
- Jasper Phase III was a focused proof of concept, and expansion to multiple parties and asset classes, will require further study to determine the impact of DLT with respect to cost savings or efficiency gains. An expansion of scope could span a number of possible dimensions — e.g., multiple assets, more of the trade and post-trade settlement lifecycle, and additional types of trades.
The report's findings provide critical insight into how the financial markets industry can adapt and use DLT, with the potential to reduce costs for participants and open up new opportunities. According to Accenture’s blockchain technology & security lead, John Velissarios, the project has proved that distributed ledger technology can be used for clearing and settlement of securities and could play an important role in promoting financial market integration.
New trade finance deals and developments at SIBOS
Voltron on R3 formal launch; Commerzbank improve trade finance processing; PrimeRevenue new comprehensive reseller programme for banks
Cash forecasting and working capital management survey
Participate in survey and understand how to avoid “unpleasant financial surprises”
AutoFX converts payment into recipient’s currency before
Bank of America Merrill Lynch enhances foreign exchange payments using data analytics to help financial institutions conduct cross-bord