In the current financial system, commercial bank money, wholesale central bank money, and securities such as U.S. 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 U.S. financial sector today 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, U.S. 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 U.S. dollars. The PoC aims to highlight opportunities to improve the operation of multi-asset settlements for domestic users of financial instruments denominated in U.S. dollars.
Key aspects of the PoC include:
- Scope: The PoC will simulate Delivery versus Payment (DVP) transactions denominated in U.S. 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 U.S. 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.
- Future Research: The participants are not committed to any future phases of research once the PoC is complete.
The Securities Industry and Financial Markets Association (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. Deloitte will be providing advisory services, and the participants intend to engage two additional vendors to provide the technology infrastructure and legal analysis for the PoC.
The PoC will also engage a group of U.S.-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.
Industry Commentary:
Charles de Simone, Managing Director at SIFMA which serves as the program manager for the PoC, said, “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, “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.”
Raj Dhamodharan, Executive Vice President, Blockchain & Digital Assets at Mastercard said, “As blockchain technology continues to mature, it will be critical for public and private organizations to partner closely to explore how it can be applied to solve for real-world pain points and improve efficiencies. The application of shared ledger technology to dollar settlements could unlock the next generation of market infrastructures – where programmable settlements are 24/7 and frictionless.”
Nick Kerigan, Head of Innovation at Swift, said, “Swift is pleased to continue supporting this collaborative innovation initiative as its focus turns towards multi-asset settlement.
Interoperability between ledgers – and between ledgers and existing market financial infrastructures – will be critical if shared ledger technology is to fulfil its potential. As with other initiatives around the world and as a long-term driver of, and advocate for, industry standardization, Swift looks forward to playing a key role alongside commercial banks and market infrastructures in the realisation of this proof of concept.”
Jonathan Prendergast, Head of U.S. Payments Strategy at TD Bank, said, “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.”
Amanda CR Morgan, Senior Product Manager, Visa Money Movement, said, “It is great to collaborate with our industry partners and the public sector on the US Regulated Settlement Network. RSN presents an opportunity to explore the impact of innovations in shared ledger technology on settlement, an area often constrained by siloed infrastructures and processes. The RSN PoC has the potential to drive improvements and innovation in settlement, transparency, and money movement for the benefit of the market as a whole.”
Arushi Sood Joshi, Head of Distributed Ledger and Digital Assets Center of Excellence at Wells Fargo, said, “Building on prior public and private sector collaboration, Wells Fargo looks forward to continued partnership to explore both assets and deposits on a regulated settlement network. This combination holds the potential to improve speed and availability for USD settlements.”
Harris Simmons, Chairman and CEO of Zions Bancorporation, said, “The development of blockchain-enabled solutions that will lead to self-executing contracts and other promising products and services is exciting, but in order for this technology to achieve its full potential there’s also the need for interoperability between a wide variety of participants. The exploration of the envisioned Regulated Settlement Network is an exciting major step in that direction.”
Horacio Barakat, Head of Digital Innovation for Capital Markets at Broadridge Financial Solutions, said, “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.”
