Bank of Canada Proves Blockchain Can Settle Equities in Project Jasper Phase III
The third phase of Project Jasper, a project first initiated in February 2017 with partners including the Bank of Canada, recently demonstrated that securities can be cleared and settled using distributed ledger technology (DLT).
Previous iterations of project Jasper have focused on the clearing and settlement of high-value interbank cash payments. The full Phase III report has now been released.
An integrated payments and securities infrastructure
The projects partners are a representative mix, from Canada’s banks and payment infrastructures in the Bank of Canada and Payments Canada, stock exchange operator TMX, and technology partners Accenture and R3.
The partners have built and tested a proof-of-concept that could be integrated with existing market infrastructure. The system uses a private distributed ledger technology , or blockchain, network to test settlement and payment interactions for securities like equities listed on the TSX exchange.
In the concept, securities and cash were represented as blockchain-based tokens by the issuing of digital depository receipts (DDRs) from the Canadian Depository for Securities and the Bank of Canada. The POC participants were able to settle simulated securities against simulated central bank cash. After final settlement, equity and cash DDRs could be redeemed.
This phase of Jasper has been deemed successful as it demonstrated that clearing and settlement worked and could, if implemented in real systems, reduce risk and improve efficiency for stakeholders.
Jasper Phase III demonstrated that post-trade settlement of net and novated transactions using DLT were possible. Novated transactions are where obligations or liabilities are changed. The use of DLT also proved that transactions could be conducted privately using blockchain technology.
The platform was able to permit stakeholders only to perform their own authorized functions and allowed the Bank of Canada and Canadian Depository for Securities to retain full control of their respected instruments, which became tokens on the DLT platform.
Though summary findings of phase III were first released in May 2018, the partnership has now published its full findings.
“The proof-of-concept platform constructed was able to process pledge, transaction and redeem functions in a manner designed to address the privacy and scalability requirements of the Canadian system,” said the report.
Jasper uses the Corda DLT platform developed by the R3 consortium of over 200 firms seeking to develop and employ blockchain technology for enterprises and financial infrastructures.
An ongoing project
The team appears not yet finished. Planned expansion to more parties and asset classes, said the Payments Canada press release, will need further study.
It suggested that in determining cost savings or efficiency gains, expanding the project scope would include more of the securities life cycle and adding more types of trade. This further investigation, says the just released full white paper, could reveal more operational cost savings and reduced back-office reconciliation efforts.
“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,” said Scott Hendry, Bank of Canada Senior Special Director, Financial Technology.
The project Jasper partnership looks set to continue its investigation into blockchain-based DLTs to improve “material benefits” and efficiencies in Canada’s financial systems. Both in high-value interbank settlements, and its latest investigations into securities settlements.
Image source: Wikimedia Commons
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