SWIFT, a global member-owned cooperative and a provider of secure financial messaging services, and seven central securities depositories have signed a Memorandum of Understanding to work together to demonstrate how distributed ledger technology could be implemented in post-trade scenarios, such as corporate actions processing, including voting and proxy-voting. The group will investigate the types of new products that can be built using it and how existing standards such as ISO 20022 can support it.
Among the central securities depositories (CSDs) participating in the distributed ledger technology (DLT) project with SWIFT are Abu Dhabi Securities Exchange, Caja de Valores, Depósito Central de Valores, Nasdaq Market Technology AB, National Settlement Depository, SIX Securities Services, and Strate. Additional CSDs are expected to join.
Today, securities processing, particularly in areas requiring multi-party contact, involve extremely cumbersome manual processes that can carry significant inherent cost and risk. As a part of the Memorandum of Understanding (MOU), SWIFT and the CSDs have defined the product requirements for an e-voting solution based on DLT that includes common standards and principles.
“To ensure interoperability and smooth migration, it is crucial that new technologies support existing common standards such as ISO 20022,” said Stephen Lindsay, head of standards at SWIFT. “There is clear value in re-using established business definitions and facilitating interoperability amongst DLT implementations, which this project will demonstrate.”
Other aspects of the MOU include fostering collaboration amongst the CSD community in DLT research and development, helping define the role of financial market infrastructure providers in markets based on distributed ledgers and; identifying, defining and developing additional use cases for DLT in a CSD environment and the post-trade landscape, such as services for different kinds of DLT-based digital assets.
In addition, the group will focus on creating and adapting common standards and principles for the use of DLT amongst CSDs and the financial industry, and promoting the adoption of those standards and principles to other parties, including regulators.
“The reason why NSD is working on finding areas to use blockchain and FinTech in general is due to the new post-trade technologies’ potential,” said Eddie Astanin, chairman of the National Settlement Depository Executive Board. “Based on our experience, blockchain, smart contracts, and other FinTech solutions may significantly upgrade the quality of services provided to our existing and potential clients. In this context, international cooperation based on the win-win principle will considerably increase the efficiency of such findings and contribute to industry development in general.”
SIX Securities Services CEO and ISSA Chairman Thomas Zeeb also discussed the potential for DLT in securities processing. “The work being led by the CSDs working group on DLT is tackling a key challenge related to emerging technologies, which is a clear lack of standards. As the industry evolves, DLT-specific standards such as ISO 20022, will provide a great foundation, in terms of both existing business content and approach.”
Confirming the importance of the CSD Working Group on DLT, the International Securities Services Association (ISSA) recently endorsed the group and included it as part of a new work stream within the Association’s existing Working Group on DLT, giving this initiative greater industry visibility. As a part of ISSA, the CSD Working Group on DLT will initially focus on digital assets with a goal to establish a business framework for how these assets could be used in the post-trade space.
The framework will identify key definitions, classifications, services and post trade service provider roles. Findings from the use case on digital assets are expected to be published in Q2.