Blockchain must be adapted for settlement usage

Industry participants say ‘archetypal’ deployments of blockchain do not lend themselves to settlements.

By Paul Walsh

Blockchain technology must be adapted if it is to be used in settlement transactions, an industry panel has said.

Speaking at the SWIFT Business Forum in London, participants discussed whether the deployment of blockchain would improve the settlement process.

Moderator Goran Fors, head of market development and custody/cash sales at SEV questioned whether blockchain was needed in the current settlement system. A process he regarded as “a fairly well functioning process today.” 

Thorsten Piesel, CEO of Rise Financial Technologies stated blockchain in its traditional sense would not lend itself to settlements and different asset classes would also need to be taken into account. 

“If we take the archetypal blockchain and use that for settlement, it doesn’t make sense,” said Piesel.

“If we think about the concept of decentralised distributed systems and what that can bring to the post-trade world and the settlement space then it becomes attractive.”

“We cannot really generalise but with blockchain per se, I wouldn’t use the archetypes, I would start with what asset we have in mind and how the settlement process can be improved in terms of time windows and costs.” 

Fellow panellist Michael Foley, head of blockchain R&D at Equiniti concurred with Piesel on adapting blockchain for settlement stating “there are a lot of intermediaries in the process” occasionally leading to “friction” within settlements.

Settlement has been touted as one of many potential uses of blockchain technology within securities services.

SIX Securities Services recently revealed it had developed a blockchain powered service covering the full bond trading life cycle from issuance to settlement.

Other Industry participant have expressed reservations about blockchain and settlement.

Earlier this year FINRA warned that that under a DLT-based infrastructure, clearing and settlement of securities transactions may occur outside of traditional infrastructure leading to a potentially unclear distinction between trade execution and settlement.

Fellow panellist Michele Curtoni, head of emerging technologies strategy at LSEG, argued the next stage of blockchain development needs to focus on what the technology is capable of.

“The proof of concept work that we have seen, both in the CSD world and CCP world has focused on matching what distributed ledgers actually do and seeing if there is a big match to normal activities,” said Curtoni.

“But there is a lot of different operations involved, for instance in the corporate actions space and the problems need to be addresses through proof of concepts.”