The Singapore stock exchange (SGX) has announced partnering with the Monetary Authority of Singapore (MAS), the city-state's de facto central bank, to explore utilization of blockchain for improving the speed and efficiency of the securities settlement process. The initiative is getting technical support from three established technology partners: Nasdaq, Deloitte, and blockchain startup Anquan. (See also: Medici, The Blockchain Stock Exchange.
The collaboration will develop capabilities to scale up the country's Delivery versus Payment (DvP) capacity with the use of blockchain-based smart contracts. Use of smart contracts will the enable necessary automation in executing the DvP transactions. DvP is a settlement procedure in which assets are transferred between the parties only when corresponding payments are received. Smart contracts are self-governing contracts that get executed automatically based on the contained programming code and agreements that exist across a distributed, decentralized blockchain network. (See also: UBS to Test Blockchain Settlement System.)
Earlier, the MAS initiated Project Ubin in 2016 which involved testing of interbank transactions settlement via distributed ledger technology (DLT). It used Central Bank Digital Currency (CBDC) experiment using three different blockchain technologies based on R3’s Corda, Hyperledger Fabric and JPMorgan’s Quorum. The resulting three separate sets of code were open-sourced by MAS, and the DvP project will also use this open-source code and software.
Speeding Up Settlements
The project aims to build a secure, distributed blockchain-based network where financial entities and participants can transact securities that have been converted into digital tokens through different blockchain platforms. The initial phase of the project expects to produce a detailed report covering identification and assessment of key design issues by November of this year.
SGX already has existing relations with Nasdaq and Anquan. SGX and Nasdaq have agreement to enable dual listing of qualifying securities, and SGX’s Reach trading platform is based on Nasdaq technology. Anquan is also partnering SGX on a BondChain project that focuses on SGD-denominated corporate bonds. Anquan’s technology supports the concept of sharding, which structures the blockchain in smaller partitions to improve on the scalability, latency and transaction throughput.
SGX joins the Canadian TMX Exchange, which has worked on a similar project, and the Australian Stock Exchange (ASX) is also scheduled to start testing its blockchain-based CHESS system next year with final roll out expected by late 2020 or early 2021. (See also: Tel Aviv Exchange Unveils Blockchain Platform.)
Tinku Gupta, head of technology at SGX, said, “This initiative will deploy blockchain technology to efficiently link up funds transfer and securities transfer, eliminating both buyers’ and sellers’ risk in the DvP process. This is a collaborative innovation bringing together multiple players to pursue real-world opportunities that will benefit the ecosystem.”