Recommended
Recommended
More Related Content
Viewers also liked
Viewers also liked (14)
Recently uploaded
Recently uploaded (20)
Clearing and Settlement - Solved by the Blockchain
- 1. Blockchain - Application to Clearing and Settlement Colin Kwan COO of Magnr Investment Bank of the Future Formerly from UBS and Deutsche Bank
- 2. What is Clearing and Settlement? • Executing an order, “the trade,” declares the intention to buy or sell a security • “Clearing and settlement” refers to everything that happens after that initial declaration to cause the actual transfer of assets and ownership • Instructions and trade-related information must flow between broker/dealers, the securities exchange, central clearing parties, custodial banks, and security depositories, so that each takes the necessary action at the right time • How well the process works depends upon how well information flows between all of the players Source: Harvard Research Group
- 3. Simple Settlement and Clearing
- 4. Credit Card Transaction Source: www.futurepaytech.com
- 5. Securities Clearing and Settlement Exchange Clearing Service Clearing Participant (Brokers) Clearing Participant (Brokers) 1. Trade ( T ) 2. Reporting 2. Notified Trade (T) 2. Notified Trade ( T ) 3. Net Batch Instructions (T+1) 3. Net Batch Instructions (T+1) Settlement Participant (Custodians) 4. Batch Instructions (non-novated) 6. Confirmation of DvP Transfer (T+3) Settlement Participant (Custodians) 6. Confirmation of DvP Transfer (T+3) 4. Batch Instructions (non-novated) Clearing House Novates the trades and acts as central counterparty Settlement House Settles novated and non- novated trades and conducts multilateral netting Central Bank Registry 7. End of Day Reporting (T+3) 5. Instructions to effect transfer of funds (T+3) Source: ASX
- 6. Fundamentals • In order to sell a security/product you need to prove that you have it • In order to buy the security/product you need to prove you have the funds • When it is bought/sold, the ownership is transferred • How well the process works depends upon how well information flows between all of the players
- 7. Smart Contracts The Contract needs to have: • What the asset is • How much/size/weight • Value (currency) • Ownership • Terms and conditions • Actions
- 8. How Smart Contracts Work Exchange A B Registry Digitise the Land Deed Buy House Sell House Buy House Get Token Digitise Currency Match Buyer with Seller Contract receives assets Contract distributes assets Clearing and settlement is automated Ownership is undisputed
- 9. The Future is Here • t0.com by Overstock • Clearing and Settlement reduced to 10mins • (the time it takes for a single confirmation on the blockchain) • Auto Clearing and Settlement is here to stay
- 10. Why Use Bitcoin • The clearing and settlement process will be far simpler as transfers of ownership are established immediately using • If using fiat, ownership could be guaranteed by Central Banks issuing “smart contracts” or digitised tokens (i.e. Bitcoin) thus making the creation of the more complex smart contracts is more efficient • Using Bitcoin enables cross border transactions instantaneously allowing trades on all markets regardless of geography and currency
- 11. Questions Colin Kwan COO of Magnr Investment Bank of the Future Formerly from UBS and Deutsche Bank
Editor's Notes
- Hence why there are custodians which are trusted parties that the Clearing Houses can “trust” Settlement parties where the Clearing house trust Institutions which are “regulated” are trusted parties Bitcoin/Blockchain got around all that. Transactions are performed through a trustless network
- Imagine all the information was in one contract.
- Party A - Buys asset from Registry and receives a smart contract Party A - They Sign up with an Exchange, establishes anonymous connection to Party B Party A - Makes trade with Party B, signs over contract Party B - Sends over funds The Smart Contract ensures that both parties transfer the assets Party B - Once both assets are received by the Smart Contract, Smart Contract actions the distribution of received assets