The Securities Industry and Financial Markets Association (SIFMA) highlighted an industry proof-of-concept (PoC) that investigates the potential of shared ledger technology to upgrade liquidity management and financing for domestic users of US Dollars and Treasury securities.
SIFMA will be serving as Program Manager for the RSN PoC. Participants in this project include the following institutions: Citi, J.P. Morgan, Mastercard, Swift, TD Bank N.A., U.S. Bank, USDF, Wells Fargo, Visa, and Zions Bancorp. The participants intend to engage two additional vendors to provide the technology infrastructure and legal analysis for the PoC.
In the current financial system, commercial bank money, wholesale central bank money, and securities such as US Treasuries and investment grade debt all reside on separate systems. The tokenization of these instruments may enable settlement on a common regulated venue established under existing legal frameworks.
To explore this potential, members of the regulated US financial sector announced a Regulated Settlement Network (RSN) proof-of-concept (PoC) that will explore the feasibility of shared ledger technology to settle tokenized commercial bank money, wholesale central bank money, US Treasury securities and other tokenized assets.
The RSN PoC envisions an interoperable network for multi-asset transactions that aim to operate on a 24/7, programmable shared ledger. Building on the results of a previous industry PoC, this project will further research the settlement of tokenized cash and securities on a common system.
The RSN PoC will be conducted in a test environment and will simulate multi-asset transactions in US dollars. The PoC aims to highlight opportunities to improve the operation of multi-asset settlements for domestic users of financial instruments denominated in US dollars.
Key aspects of the PoC include:
Scope: The PoC will simulate Delivery versus Payment (DVP) transactions denominated in US dollars.
Industry collaboration: The PoC reflects a collaborative effort by a diverse group of banks and other regulated financial industry participants to gain further consensus on the use of shared ledger technology in the US financial system.
Legal analysis: The PoC will include an analysis of whether the envisioned network may operate in line with existing laws, rules, and regulations or guidance in the United States or if any amendments to applicable legal framework(s) may be necessary.
Findings: Following the conclusion of the PoC, the group will publish the findings of the project as an important contribution to the understanding of next generation settlement models.
The PoC will also engage a group of US-based project contributors, who will provide subject matter expertise and explore the applicability of connecting certain external solutions and platforms to the multi-asset ledger. The group of project contributors includes: The Bank of New York Mellon, Broadridge, DTCC, The International Swaps and Derivatives Association, Tassat Group, and the MITRE Corporation, who will engage as a non-commercial knowledge contributor.
The New York Innovation Center (NYIC) at the Federal Reserve Bank of New York will be a technical observer in this PoC to gain knowledge on the use of shared ledger technology as infrastructure to conduct transfers between regulated financial institutions, including settling tokenized wholesale central bank money, commercial bank money, and U.S. Treasury securities. The NYIC’s role in this project is narrowly focused on observing the participants’ research and experimentation with tokenized settlement assets.
Charles de Simone, managing director at SIFMA which serves as the program manager for the PoC, said in a statement: “This exploration of shared ledger technology is an important initiative to explore innovations working with digital forms of USD cash and securities, as market participants continue to innovate to support efficient, resilient capital markets.”
Debopama Sen, global head of Payments at Citi Services said in a statement “A key element of the tokenization thesis is the potential to build more general-purpose venues for the settlement of financial transactions. In today’s digital economy, financial market infrastructures may need to settle a host of digital assets within well-defined legal frameworks. Citi looks forward to exploring the opportunities of this project, which brings together assets that currently live in separate silos into a 24/7, programmable, multi-asset settlement environment – and aims to do that in a collaborative manner across public and private sectors.”
Jonathan Prendergast, head of U.S. Payments Strategy at TD Bank, said in a statement: “There is a potential to create a global, on-demand 24-7 system that can support settlement of financial assets – based upon the stability of sovereign fiat currencies – marrying the stability and safety of the current model with the speed and flexibility required in modern global commerce.”
Horacio Barakat, head of Digital Innovation for Capital Markets at Broadridge Financial Solutions, said in a statement: “Interoperability between tokenized settlement assets could unlock new possibilities for multi-asset transactions. Distributed ledger technology is paving the way for innovative applications in capital markets, and the RSN as envisioned could be a real catalyst for streamlining transfers between financial institutions. Broadridge looks forward to conducting this PoC alongside key partners as a concerted effort to investigate potential shared ledger technology solutions.”