The Use Of Distributed Ledgers In Securities Settlement
Workshop
With Thanks To Our Event Sponsor:
The Swift Institute has commissioned research from Professors Michael Mainelli of Z/Yen and Alistair Milne of Loughborough University on the highly topical issue of The Impact and Potential of Blockchain on the Securities Transaction Lifecycle.
This focus group meeting is an essential step in this research. It aims to elicit the views of participants on two of the three hypotheses being examined in this project.
- First, that the settlement of securities purchases or other financial transactions will be supported by much more efficient processes than the 'bitcoin mining' used in the permissionless Bitcoin newtork. Instead scaleable practical application will be based on permissioned ledgers. Our initial review (to be circulated prior to the focus group meeting) indicates that most informed practitioners envisage the employment of permissioned rather than unpermissioned distributed ledgers in security settlement. Bitcoin mining is therefore unnecessary. In a permissioned system all network participants are known and consensus validation can be based on digital signatures alone (identifying the sender and recipient of value) and there is little need for additional protection e.g. against Sybil attack by ‘anonymous’ nodes acting maliciously.
- Second, the choice between co-ordinated and widespread change in operational processes or piecemeal efforts. Our initial review is suggesting a number of related issues where we want to obtain the views of participants:
(a) some proposals for using distributed ledger in financial settlement are piecemeal, aimed at specific assets which are not currently held in central security depositories e.g. trading of syndicated loans, repo/ securities lending or insurance contracts. Are the first applications of distributed ledger to settlement most likely in such specific and relatively undeveloped markets? Or can we expect a major co-ordinated change in core securities settlement as supported by DTCC in US or Euroclear and other infrastructures in Europe?
(b) another possibility is that early progress may be made within individual firms, using internal distributed ledgers to reduce the currently substantial costs of reconciliation between different operational systems.
(c) strong case supporters for co-ordinated and widespread change argue that there are very substantial potential reductions in post-trade costs and reduction in operational risks; but while the general proposition is plausible, how persuasive is this for business decision makers? Is there a route to developing a prototype operation for a subset of transactions that can lead to critical mass and widespread adoption?
Further information
Date
Wednesday, 25 November 2015
Time
9:30 - 11:00 GMT
Cost
Free
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Speaker(s):
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Professor Michael Mainelli
Z/Yen Group Limited
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Alister Milne
Loughborough University
