TMX and Bank of Canada conclude blockchain 'feasible' for securities settlement

TMX and Bank of Canada conclude blockchain 'feasible' for securities settlement

Using distributed ledger technology for instantaneous clearing and settlement of securities is "feasible", Canada's central bank and biggest exchange operator have concluded in the wake of a proof-of-concept test.

Bank of Canada and TMX Group, working with Payments Canada and Accenture, teamed up last October to experiment with an integrated securities and payment settlement platform based on DLT.

Reporting back, the partners say that they have managed to demonstrate that the instantaneous clearing and settlement of securities on-ledger is feasible, "showing for the first time that both central bank cash and assets can be tokenized to complete an instant, end-to-end equity settlement on DLT".

Gerry Gaetz, CEO, Payments Canada, says: "This proof of concept shows that it is possible to deliver payments in a way that has never been done before - by directly swapping cash from buyers to sellers, resulting in instant settlements".

John Lee, MD, enterprise innovation and product development, TMX Group, called the experiment an "important financial technology milestone" but cautions that "many complex challenges remain as we move ahead".

The experiment is the third stage of Project Jasper, an initiative led by Payments Canada that has spent the last two years trying to better understand how DLT could transform the future of payments in Canada.

In the first two phases, the project focused on exploring the clearing and settlement of high-value interbank payments using DLT. These led participants to conclude that a stand-alone DLT wholesale system is unlikely to match the efficiency and net benefits of a centralised system.

However, the partners say they are making progress. Jasper III is currently the only PoC 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.

Carolyn Wilkins, Senior Deputy Governor, BoC, says: "Maintaining privacy, as well integrating other assets onto the same ledger as payments, would provide important benefits for the financial system from the use of a DLT-based wholesale payment system.

"Indeed, a key lesson from prior phases of Jasper was that the benefits of a DLT-based wholesale payment system likely lie in its interaction with the broader FMI ecosystem. Such benefits would come from reaping economies of scope and reducing costs to participants."

Comments: (1)

A Finextra member
A Finextra member 14 May, 2018, 05:21Be the first to give this comment the thumbs up 0 likes

BlockChain has huge potential in retail banking. But even bigger potential in investment banking (e.g. securities) related activities.