Utilizing distributed-ledger technology (DLT), also known as blockchain, to enable instant securities clearing and settlement has been tested successfully in a joint research project between the Bank of Canada, Payments Canada, TMX Group Ltd. and Accenture.
The organizations announced on Friday that the latest phase of their joint research initiative, known as Project Jasper, demonstrates the feasibility of instant clearing and settlement, “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 distributed ledger technology.”
“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,” says Gerry Gaetz, president and CEO of Payments Canada, in a statement.
Advocates for DLT have argued that this technology could transform financial market infrastructure (FMI) by enabling faster, more secure transactions that would ultimately result in lower costs and improve market efficiency.
Project Jasper, which was launched in 2016, aims to explore the potential of creating an integrated securities and payment settlement platform based on DLT. Initially, the project focused on utilizing DLT to carry out high-value interbank cash transactions. This latest phase is working on integrating payments and securities infrastructure, and, the participants say, proves it’s possible to execute post-trade settlement on a DLT platform, which could significantly reduce counterparty risk and free up collateral.
“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,” notes Carolyn Wilkins, senior deputy governor at the Bank of Canada, in a statement. “Such benefits would come from reaping economies of scope and reducing costs to participants.”
“We have witnessed an impressive achievement and an important financial technology milestone for Canadian capital markets with the successful transaction of tokenized securities and cash in their basic forms,” adds John Lee, managing director, enterprise innovation and product development, TMX Group, in a statement. “Many complex challenges remain as we move ahead, but we look forward to the crucial collaborative work necessary to effect substantive, transformative change in global markets.”