I think our lead fintech news brief about Instinet and Credit Suisse completing multiple equities transactions in T+0 via blockchain/distributed ledger technology (DLT) may have more significance than at first glance.
These two major players used the Paxos Settlement Service from Paxos Trust Company, a self-described infrastructure provide, to settle U.S.-listed equities trades on a same-day basis. The trades for the test that happened March 4, 2021, were completed at 11 AM EST and 3 PM EST, and were settled by 4:30 PM EST, Paxos officials say.
The provider says the event was a demonstration of “the platform’s ability to enable same-day settlement for trades conducted throughout the day. In the legacy system, settlement can only occur the same day if trades are completed before 11 AM ET, and therefore is rarely utilized.”
Paxos officials say that this demonstration was “the first live application of blockchain technology for the U.S. equities market and enables the simultaneous exchange of cash and securities to settle trades. … The same-day settlement was conducted with live trades to demonstrate the future capability of the platform.”
The provider also notes that the Paxos Settlement Service is “a private, permissioned blockchain solution designed to allow two parties to bilaterally settle securities trades directly with each other. The platform is interoperable with the legacy clearing system and can facilitate settlement on any time cycle.”
With this key demonstration under its belt, Paxos is pushing forward in its plans to become a full clearing agency with the blessings of the SEC. For now, the company is governed by the SEC’s No-Action Relief protocol. Paxos officials say they hope to achieve full clearing agency registration with the SEC this year.
My strong suspicion is that Paxos is not alone in being able to offer T+0 and T+1 settlement for a variety of securities transactions via cutting-edge, blockchain/DLT linkages. I think we may be seeing more announcements along these lines throughout the year as a variety of explorations start to yield good results.
This would be welcome news as the expectations for blockchain-based post-trade solutions have been very high especially when the industry first began to show interest in the inner workings of Bitcoin, cryptography, and other cryptocurrencies. There was even a little revolutionary fervor about it that simmered down to reality.
If we are beginning to see the emergence of DLT-based solutions that deliver compelling new results, then a lot of the skepticism and disappointment about blockchain will be transformed into new enthusiasm. It may even impact the DTCC’s push to have the industry move to T+1 after the very successful effort that moved the industry to T+2.
The industry may wind up with many options for getting to a shorter settlement cycle. In fact, the vital processes of clearing and settlement may undergo a much-needed and profound review by the industry as the next chapter approaches.