The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) have successfully developed Delivery versus Payment (DvP) capabilities for the settlement of tokenised assets across different blockchain platforms. This will help simplify post-trade processes as well as shorten settlement cycles. (DvP is a settlement procedure where securities and monies simultaneously exchange to ensure the delivery of securities occurs only if the corresponding payment happens.)
Mr Sopnendu Mohanty, Chief FinTech Officer, MAS, said, “Blockchain technology and asset tokenisation are fuelling a new wave of innovation globally. This project has demonstrated the value of blockchain technology and the benefits it can bring to the financial industry in the short to medium term. The concept of asset tokenisation, as well as other learnings gleaned from this project, can potentially be applied to a broad spectrum of the economy, creating a whole new world of opportunities.”
The DvP prototypes – developed with technology partners Anquan, Deloitte and Nasdaq – demonstrated that financial institutions and corporate investors are able to carry out the simultaneous exchange and final settlement of tokenised digital currencies and securities assets on different blockchain platforms. The ability to perform these activities simultaneously improves operational efficiency and reduces settlement risks.
In addition, this collaboration demonstrated:
- DvP settlement finality
- interledger interoperability
- investor protection.
All three occur through specific solutions designed and built on blockchain technology. Following its conclusion, MAS and SGX have jointly published an industry report. This provides a view of automating DvP settlement processes with Smart Contracts. Smart Contracts are self-executing contracts where contractual terms or business logics are codified as software code to be executed upon the fulfilment of pre-defined conditions. The report also:
- identifies key technology and operational considerations to ensure resilient operations
- defines a market framework that governs post-trade settlement processes such as arbitration.
Ms Tinku Gupta, Head of Technology at SGX and Project Chair, said, “We are delighted to drive this important industry effort to accelerate innovation in the marketplace. Based on the unique methodology SGX developed to enable real-world interoperability of platforms, as well as the simultaneous exchange of digital tokens and securities, we have applied for our first-ever technology patent.”
Project Ubin started in November 2016 as an industry collaboration to explore the use of Distributed Ledger Technology (DLT) for clearing and settlement of payments and securities. The aim was to understand DLT’s potential in the context of making financial transactions and processes:
- cost less.
The first two phases of Project Ubin focused on domestic inter-bank payment and settlement. Phase 1 achieved the objectives of:
- producing a digital representation of the Singapore dollar for interbank settlement, testing methods of connecting bank systems to a DLT
- making the MAS Electronic Payment System (MEPS+) interoperate with the DLT for automated collateral management.
Phase 2 successfully developed software prototypes for three different models. These applied to decentralised inter-bank payment and settlements with decentralised netting of payments which preserved transactional privacy.
Enterprise Times: what does this mean
Though this demonstration relates to tokenised assets, Enterprise Times believes it is significant for multiple reasons. The most obvious is the involvement of a central banks (MAS) and two exchanges (SGX and Nasdaq). Beyond that are the terms of reference, concentrating on transparency, resilience and cost reduction. These are aspects which are relevant to all enterprises considering blockchain technology for ‘exchanges of value’.
Best of all, the MAS is encouraging central banks, financial institutions, as well as academic and research institutions to tap the open source-code to facilitate their experiments, research and innovation. This is available, with technical documentation, for public access under Apache License, Version 2.0.