Today the Asian Development Bank (ADB) announced a project to trial blockchain for settling cross border securities transactions. The tests will include the central banks and securities depositories for the ASEAN region plus China, Japan and Korea.
Cross border securities settlement within Asia currently uses custodians and correspondent banks for settlement. Hence, these transactions within Asia are often routed through the United States and Europe and adopt the standard two day settlement. Bringing the settlement within Asia, and avoiding time differences in operating hours with other regions, makes it easier to shorten payment times. Faster settlement can significantly reduce counterparty risks.
An initial design phase will complete this quarter, with a prototype scheduled for the Q2 of 2022. Technology partners for the project include ConsenSys, Fujitsu, R3 and Soramitsu, with plans to explore interoperability with central bank digital currency (CBDC) initiatives across the region. There are already two cross border CBDC projects with ASEAN members. The mBridge project initiated by Thailand includes Hong Kong, China and the UAE. And Singapore’s Project Dunbar involves Malaysia as well as South Africa and Australia.
Blockchain and smart contracts are starting to be used worldwide to speed up settlement times and, more broadly, for post-trade processes. This is on top of the move to tokenize securities.
The HKEX has developed HKEX Synapse to help with the settlement of Chinese mainland stocks bought by international investors. It uses the DAML smart contract language and addresses the challenges of China’s four-hour settlement compared to the typical two-day payment cycle elsewhere.
In the U.S., the DTCC, the world’s largest securities settlement organization, plans to go live shortly with Project Ion, its blockchain solution to shorten stock settlement times. The Deutsche Börse unveiled its post-trade platform D7, which is DLT-ready. The stock exchange owns Euroclear, which recently participated in a consortium that trialed a Banque de France CBDC for bond settlement.
The first and largest project is by Australia’s ASX, which is replacing its entire post-trade system CHESS with blockchain and smart contracts. Companies are already testing the solution, which is expected to launch in April 2023.
Meanwhile, this is not the ADB’s first blockchain initiative. In 2018 it explored blockchain for procurement, and more recently, it executed a trade credit guarantee on the Contour blockchain.
