Today Paxos announced that State Street integrated its custody offering for a pilot with the Paxos Settlement Service. This uses a permissioned blockchain with tokenized money to settle stock transactions on a same-day (T+0) basis.
One of the existing members, Credit Suisse, also took part in the pilot. Previous participants have included ABN Amro, Bank of America, Nomura’s Instinet, Societe Generale and Wedbush.
Nadine Chakar, head of State Street Digital, said the solution “further validates that the use of blockchain technology will help automate the life cycle of a trade, reduce costs and could eliminate the need for the traditional reconciliation processes used in today’s settlement environment.” The Paxos solution allows for continuous netting and settlement.
Paxos received an SEC no-action letter in October 2019 to operate the settlement platform for live transactions on a limited basis, but this expired late last year. Shortly before the expiry, Paxos filed an SEC application for a full equities clearing agency registration. The SEC has not yet published a request for public comment, implying the application is not yet that advanced.
In June last year, the SEC announced a desire to reduce the current two-day (T+2) securities settlement norm to one day or less as part of its work program.
Not only has Paxos pursued a regulatory compliant path for this solution, but it has also been conservative elsewhere. For example, it operates a stablecoin service that includes providing the technology for the third largest stablecoin Binance USD, and its own Paxos stablecoin that Meta’s Novi uses. Paxos operate as a Trust company, and its stablecoin reserves include bank balances and Treasuries alone. Circle now does the same for USDC reserves, but it did not always do so. Arguably Paxos set the example.
Paxos is backed by PayPal Ventures amongst others and has raised more than $540 million to date.
Meanwhile, the DTCC’s subsidiary, NSCC offers same-day settlement but only for transactions before 11.30am. However not all transactions require clearing, such as directly settled bilateral transactions that bypass NSCC. DTCC processes over 1 million same-day transactions daily, with many settling almost instantly. It is also launching a blockchain settlement solution, Project Ion. The offering targets bilateral settlement and will run in parallel to existing systems. More recently, the DTCC said it would collaborate with the Digital Dollar Project for securities settlement trials.
Update: the reference to DTCC having an 11.30am cut off was revised.
