A recent experiment conducted by the Bank of Canada states that it is possible to settle and clear securities in a cost-effective and efficient manner using blockchain technology. The blockchain trail from Canada’s central bank was conducted by combining country’s payment system, a distributed ledger technology (DLT) firm, a stock exchange operator and a global consulting and professional services firm.
The Bank of Canada in the trail partner’s with stock exchange operator TMX Group, payments system organizations Payments Canada, blockchain firm R3 and global consulting firm Accenture to properly demonstrate the suitability of a payment settlement platform and integrated DLT-based securities.
According to reports, the experiment to showcase the suitability of stock securities with blockchain was conducted by the bank during the third phase of Project Jasper. The experiment also explored the behavior of settling securities and payment on a private blockchain. For that, a Proof of Concept (POC) system was developed and tested that was further linked to the already existing market infrastructures.
In a report titled as ‘Jasper Phase III: Securities Settlement Using Distributed Ledger Technology’ the five organizations mentioned that “The POC intended to bring together securities and cash ledgers for CDSX [Canada’s clearing and settlement system for securities] and participants in Payments Canada’s Large Value Transfer System (LVTS) to facilitate daily consolidated cash reporting and Canadian-dollar settlement of CDSX obligations,”
The Proof of Concept (POC) solution of Jasper Phase III was developed on version 2.0 of the distributed ledger technology of Corda. The Bank of Canada was found to be responsible for bringing cash and securities on the ledger by issuing digital depository receipts while Canadian Depository was found to be catering securities for the latter.
Maximizing Efficiency and Reducing Expenses
The proof of concept test allowed the participated participants to settle against the simulated central bank funds with the simulated securities on the blockchain. As the settlements enjoy annulled degree, the cash, as well as equity, could be redeemed following their transfer.
The collateral could also be freed up without sacrificing the privacy of the transactions performed by the participants because of the POC system. However, in order to more reliably determine the cost savings and efficiency gains accruing from using distributed ledger technology, more comprehensive studies will be required.
Scott Hendry, Bank of Canada’s Director, in a statement mentioned that the distributed ledger technology (DLT) is a promising technology which has the required potential to open up new opportunities and reduce costs for the participants. He further added, “Phase III of Project Jasper gave us the opportunity to test the technology further, and work remains to be done to determine how it can be set up to maximize the benefits for the whole financial system.”