US share trades could settle in almost real-time under a system being developed by global financial markets infrastructure giant, the Depository Trust & Clearing Corporation (DTCC).
In a proposal tabled last week, DTCC outlines how a radical digitisation of capital markets infrastructure using new technologies including blockchain could take US share settlement times from the current ‘T+2’ standard to ‘T+0’. Both Australian and NZ share markets also moved to T+2 settlement times in 2016.
‘Project Ion’ offers a ‘proof-of-concept’ to spark cross-industry collaboration on achieving new super-fast settlement times, DTCC says.
“Although DTCC’s current infrastructure supports T+1 and limited T+0 settlement cycles, market behavior, legacy infrastructure and operational at client firms make it difficult to accelerate further without a lengthy industry effort – one can only move as fast as the slowest adopter,” the paper says.
The mooted DTCC ‘Digital Accelerated Settlement Service’ would be based on ‘distributed ledger technology’ (DLT, aka blockchain) but integrate with existing financial architecture.
Currently, the ASX is also embarking on a DLT upgrade of its aging CHESS settlement system.
Among a string of potential benefits, DTCC says the next-generation service could support “an end-of-day settlement cycle, as well as intraday settlement slices “.
“A shortened settlement cycle would significantly lower margin requirements for clearing agency members and reduce both pro-cyclical margin and liquidity demands by an order of magnitude,” the paper says. “The reduction of liquidity demands and lessening the amount of money that needs to be collected at any one time is a key benefit that will strengthen our financial markets, especially during critical market events that result in periods of significant market volatility.”
DTCC has begun talks with industry partners on building a working demonstration model of its proposed Digital Accelerated Settlement Service.
The firm is “conducting a comprehensive technical assessment to determine an appropriate technical stack for a more scalable implementation,” the report says.
In a complementary paper dubbed ‘Project Whitney’ released at the same time, DTCC also floats a new digital ‘tokenised’ trading system for the US private asset market.
The Whitney solution would “create a standard, modern, operationally efficient and secure approach to Issuer Services across primary and secondary private markets, including compliance enforcement of eligible tokenized securities, an authoritative stock record and asset lifecycle management”.
DTCC says the “multi-phase project [is] designed to evaluate the practical and commercial viability and value of a digital infrastructure supporting private market securities”.
The group has completed the first phase of the prototype, which settles trades on the ‘Ethereum’ network – a public blockchain systems with a pseudo-cryptocurrency element, Ether.
But DTCC will explore other settlement options in Whitney parts two and three.
“While users of the Ethereum network benefit from the widespread availability of opensource tooling, we found that many of the solutions are not fit for use in an institutional setting,” the paper says.
In a release, DTCC head of business innovation, Jennifer Peve, said, Whitney and Ion are still in “experimentation stage”.
“Projects Ion and Whitney represent the next steps in our digitalization journey,” Peve said. “Both serve as examples of practical experiments incorporating innovative technology and business concepts designed to strengthen post-trade processes and provide a resilient, secure and efficient post-trade infrastructure for the industry.”