ECB and BoJ analyze securities settlement systems: delivery versus payment in a distributed ledger environment

The main findings of the joint analysis, as detailed in this report, can be summarized as follows:

DvP can run in a DLT environment subject to the specificities of the different DLT platforms: DvP could be conceptually and technically designed in a DLT environment with cash and securities on the same ledger (single-ledger DvP) or on separate ones (cross-ledger DvP). The concrete design of DvP, however, depends on the characteristics of the DLT platforms (e.g. range of information shared among participants, data structure and locking of delivered assets). In addition, depending on the use case, the design of DvP can be influenced by a number of factors including the interaction of the DvP arrangement with other post-trade infrastructures.

DLT offers a new approach for achieving DvP between ledgers, which does not require any connection between ledgers: Conceptual analysis and conducted experiments have proven that cross-ledger DvP could function even without any connection between individual ledgers, a novelty which does not exist in today’s set- up. Functionalities such as “cross-chain atomic swaps” have the potential to help ensure interoperability between ledgers (of either the same or different DLT platforms) without necessarily requiring connection and institutional arrangements between them.

Depending on their concrete design, cross-ledger DvP arrangements on DLT may entail certain complexity and could give rise to additional challenges which would need to be addressed: The conduct of DvP transactions between ledgers that have no connection requires several process steps and interactions between the seller and the buyer. Depending on the concrete design, this could impact transaction speed and require the temporary blockage of liquidity. It should also be borne in mind that independently acting ledgers may inadvertently affect each other from an operational perspective. From a risk perspective, also the absence of fully synchronised process steps could expose participants to principal risk if one of the two counterparties does not complete the necessary process steps. Those additional risk aspects would need to be properly addressed.

The full report is available here.

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