The Securities Industry and Financial Markets Association (SIFMA) has released a report on a proof of concept project pertaining to the tokenizstion of assets and distributed ledger technology. By leveraging blockchain, the hope is to improve the efficiency of asset issuance, distribution and management. This can occur as intrinsic friction is removed and certain processes are automated.
The SIFMA report on a “Regulated Settlement Network” (RSN) addresses settlements for different assets and “cross-network transactions.” This involved tokenized bank deposits, US Treasury securities, and other regulated assets.
The existing process is largely fragmented into different silos. By tokenizing assets, security may be enhanced, and compliance may be improved under existing securities laws.
Last May, SIFMA announced a group of partners exploring the use of shared ledger technology. While SIFMA managed the project, participants included many big banks and other financial firms. The blockchain tech stack was provided by Digital Asset.
The New York Innovation Center (NYIC) at the Federal Reserve Bank of New York was a technical observer
The “Key Findings” as outlined by SIFMA are:
- Business Findings: Multi-asset and cross-network settlement could be enhanced through a shared-ledger FMI that contains tokenized securities, central bank deposits, and commercial bank deposits where each institution operates its own partition. The network enabled a common settlement infrastructure that had 24/7, programmable, and precise settlement capabilities to allow financial institutions to optimize their collateral and liquidity positions. At the same time, the network alleviated challenges such as infrastructure fragmentation and uncertainty throughout the settlement process.
- Technical Findings: The RSN infrastructure was able to support precise settlement capabilities across various asset classes within a shared-ledger FMI, demonstrating the scalability and versatility for modern financial transactions. The RSN successfully connected with other third-party networks through interoperability solutions enabling synchronized settlement.
- Legal Findings: The legal workstream did not identify any issues that would prevent the creation of RSN as contemplated within the PoC under existing legal frameworks, although further analysis and engagement with regulators would be required before any final conclusions can be reached.
Kelly Mathieson, Chief Business Development Officer at Digital Asset, commented on the Proof of Concept project.
“The US RSN’s Proof of Concept prototyped 24/7 simultaneous Delivery-versus-Payment settlement with real-time transaction visibility. This project prioritized network interoperability, encompassing seamless interaction with the activities and value within other networks. The US RSN PoC demonstrated the use of tokenized securities and deposits in repo financing transactions, and the significant capital efficiency and liquidity benefits available with flexible, true simultaneous settlement,” said Mathieson.
She said the success was driven by a “meticulous design stage” as they delivered “seamless simultaneous settlement.”
“The US RSN showcases how interconnected, synchronized applications can eliminate complexity and enhance operational efficiency, redefining standards for modern financial markets. It is not just a technological milestone, but a collaborative effort that sets the stage for a unified digital market infrastructure. To avoid narrow proof-of-concept silos, we’ve prioritized broad integration and scalability from the outset. By implementing true simultaneous settlement and leveraging real-time updates, the US RSN exemplifies how next-generation networks could operate. This innovative approach offers an opportunity to minimize settlement delays and reduce operational risks,” added Mathieson.
While there has been much hype surrounding blockchain and its capabilities, much of the technology’s value may end up being back office and asset management improvements. It’s not very sexy, but it could be a huge advancement in the securities and investments world, reducing cost, improving compliance, streamlining management, and opening up a new world of novel assets available to the public.