Central banks: “Blockchain will renew securities settlement.”

The European Central Bank and the Bank of Japan have released a joint report claiming that distributed ledger (DLT) technology could create new securities settlement mechanisms such as “cross-chain atomic swaps” between disconnected documents.. The 52-page report consists of “Securities settlement systems: Delivery-counter-payment in a distributed ledger environment”.

Impacts of DLT on securities delivery

Banks’ DLT research project, December 2016 Launched in May, Project Stella is designed to join a broader discussion about the usability of DLT.. This part of the banks project deals with the delivery of securities compared to cash and how it might work in a DLT environment.. The new report addresses what is known as the payment for settlement delivery (DvP) method.. Under DvP, an asset is only transferred if the other asset is active. Binary transfer is called “atomicity”. Project researchers created prototypes based on Corda, Elements and Hyperledger Fabric platforms. Researchers have discovered that DvP can be conducted in a DLT system with cash and securities on separate ledgers and a single ledger.

Link to individual ledgers lacks cross-border delivery

Experiments and conceptual analysis, border demonstrated that beyond DvP can take place without any connection connecting individual ledgers. In the report, this scenario does not happen in the current method. The report also noted that cross-ledger DvP systems can pose operational challenges to settlements.. The report also stated that DvP exchange between unconnected paperwork will require various interactions between buyer and seller.. The system can also affect the speed of the process. It may even require liquidity to be temporarily blocked.. The lack of synchronization in the system can expose participants to the main risk if a counterparty in the transaction is unable to complete all steps in the process.

A report from last September stated that the technology is not ready to replace existing settlement systems.


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