While the scene at Blockchain Week New York City was all about hype, glitz and swag, an actually important milestone in distributed ledger technology recently occurred, quietly, in Toronto.
Attendees at #Consensus2018 found airport-sized registration lines, a blockchain-enabled beer machine, and Snoop Dogg on stage. But a week earlier, at the Payments Canada Summit, a working group experimenting with an integrated securities and payment settlement platform based on DLT proclaimed the concept ‘indeed feasible”.
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Project Jasper is a two-year-old collaborative research initiative between Payments Canada, the Bank of Canada, TMX Group, Accenture and R3. The third phase “ confirmed that instantaneous clearing and settlement of securities on-ledger is indeed feasible, as Jasper III completed an instant, end-to-end equity settlement for tokenized securities on DLT for the first time,” exchange operator TMX said in a release.
Many market participants consider post-trade a relatively antiquated part of the trade lifecycle, one that is ripe for disruption. DLT, of which blockchain is a type, might be that disruption.
“Due to changes in market conditions, whether it is the need to reduce clearing and settlement cycles, (or) add new products – for example the Margin Transit Utility introduced by DTCC – securities lending and collateral management products, even Cryptocurrencies, it is absolutely necessary to examine new technology to reduce cost and market risk,” Suresh Kandula, director of technology at Publicis.Sapient, said in a statement provided to Markets Media. “The question remains whether blockchain is the most appropriate method to meet those requirements and deliver the next iteration of market infrastructure.”
“We’ve seen with the ASX CHESS and Digital Asset Holdings announcement that the industry has moved beyond experimenting with DLT and is now looking at how to implement the technology,” Kandula continued. “Based on work done with DLT platforms by large intermediaries to date, for example the DTCC efforts around Trade Information Warehouse (TIW), implementations will be incremental, streamlining bits and pieces of post-trade processing starting two plus years from now and likely taking at least five years, or more, to be ubiquitous.”
The Jasper project marks a growing body of work that has moved from ideation to proof of concept, identifying the potential impact and key benefits of DLT on broader Canadian financial market infrastructure, according to the TMX release.
"This is an impressive achievement and financial technology milestone for Canadian capital markets," said John Lee, Managing Director, Enterprise Innovation and Product Development, TMX. "That said, more work is needed to closely address remaining complexities as the group moves forward with the crucial tasks necessary to effect substantive, transformative change in global markets."
Jasper III is currently the only proof of concept that maintains privacy for market participants and their transactions by giving only the parties involved in specific transactions the ability to view the transaction history, without providing the same visibility to other participants on-ledger, TMX said. Previous phases focused on the clearing and settlement of high-value interbank cash payments using DLT. Phase III explores an integrated payments and securities infrastructure.
The proof of concept allowed clearing and "delivery versus payment" settlement immediately, demonstrating that it's possible to complete post-trade settlement on a DLT platform. The ability to settle transactions immediately significantly reduces counterparty risk and frees up collateral.
Said Sapient’s Kandula, “It will be a stretch to imagine that entire post-trade lifecycle would be using DLT, but it will be an evolutionary process over many years."