Last year I posted The Global Block Chain Ledger, as a Payment System for the Digital World, and early this year we released the first commercial Block Chain Ledger Payment Rail which implements this vision. Toward the end of 2015 I posted about the vision of a Global Continuous Settlement System to replace the existing T+3 settlement systems in use today.
The objective of both of these visions was
A strict simultaneous, irrevocable and final DVP settlement process which ensures there is no time gap between the cash leg settlement and the securities leg settlement, a truly atomic, cross block chain ledger transaction.Move on to 2016, and we have released a POC for this holy grail of global settlement. A truly atomic cross Block Chain Ledger settlement between the Block Chain Ledger Payments Rail and the Block Chain Ledger Securities or Asset Rail.
This is commonly known within the Bank of International Settlements(BIS) as DVP Model 1:
"systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment)”
Ok, so we have aligned the global Financial Market Infrastructure(FMI) and the technology view points, everyone is on the same page.
What does this all mean?The atomic transfer is actually P2P between codified "legal tender" and codified "digital asset", the by-directional atomic transfers actually happen between two high assurance HSMs, where each of the 4 keys which are the actual fiat currency (AUD) and an ASX SIN security in the POC. Due to the codification process, the codified AUD fiat legal tender, can only exist inside the payment rail, and is instantly reconciled with the total AUD liability appearing in the RBA, after all these are just ledgers.. Only the RBA and licensed banks can codify and produce the legal finality of the Payment Rail key transfers. This P2P model, is not new or innovative, it is almost identical to the 1995 Mondex E6 smart card based electronic cash, but brought forward to 2016..
Ok, so that's the technology detail, what does it actually mean?
As the codified digital fiat currency is "legal tender", not an "negotiable instrument" or IOU, and the codified asset is the "actual asset", then the atomic transfer, when published on the Bank and the Company Public Block Chain Ledgers meets the requirements for legal settlement when combined with the relevant orchestrations by both the licensed Bank and licensed Securities Settlement. While the POC use case is based upon an initial licenced Exchange Listed Company, selling its stock via a mobile phone application, the same process can be applied to any existing "post execution" trades i.e. it is a Global Block Chain Settlements Rail, which provides continuous settlement 24*7*365 around the planet..
While meeting all of the 12 principle contained within
| Principles for financial market infrastructures |
Ok, what does this really.. really.. mean?Quite simply:
Zero counterparty risk, zero liquidity requirements, continuous settlements across a diverse range of securities and instruments settling as required, but also instantaneously when required. There are no delayed or batch processing ever, in any part of the Financial Market Infrastructure.
The end game is..The Global Block Chain Payments and Settlement Rails are the end result of over 15 years of Block Chain Ledgers R&D, the first Block Chain Ledger, which we patented in 2000 (our patent prevents anyone, from using patents to stall the use of Block Chain Ledgers by anyone, we believe in a free market), was released commercially in 2004. It simply takes over a decade for technologies to "gestate" and reach commercial maturity.
Close to zero systemic risk,
for the payment and securities Financial Market Infrastructure.
Plus better utilization of capital globally.
The technologies are commercially available today, its now up to the market and regulators, the individual Investors and Bank Customers.
Theses solution exist within the existing legal, regulatory and compliance frameworks, no changes required. This is the most effective way to address existing non-compliant, or outside the system solutions like bitcoin, and blockchain thingies. By offering a compliant solution, which actually delivers real value to all players, and letting the market decide, prohibition never works, the world is full of illegal drugs and weapons...
True disruption is not technology it is "empowered individuals" and "Trust" extended into the digital world.
The "Uber moment" for financial market regulators and Financial Market Infrastructure is here today..
Additionally the solution delivers a "social dividend" which can remove the "unbanked" and "unknown" of the world populations, and offers the opportunity for these populations to participate in the global economy, a win-win for each and every person on the planet..
What does this means for Australia?
Today we have a monopoly provider of Securities Settlement Facilities, basically this solution would simply replace the existing ASX Settlement facility (CHESS) which is operating as a DVP model 3 system, with all its inherent risks, with a low risk more appropriate DVP model 1 solution, and move Australia into the world of "continuous settlement", rather being stuck in the existing T+3 world.
BIS provides the following guidance to regulators such as ASIC:
"Because principal risk involves the full value of the securities transferred, a default by a participant in a securities settlement system that permits such risk may well entail credit losses so sizable as to create systemic problems. For this reason, it is critical for a securities settlement system to create the strongest possible linkage between delivery and payment".
Australia needs to reduce the current "systemic risk", by considering the BIS guidance for a national Financial Market Infrastructure. The move to DvP Model 1, cannot be left of the table for another decade. The Opes Prime and recent BBY chaos and resulting loss of investor funds, cannot be allowed to continue without any regulator action.
Time for ASIC to do something about systemic risk, a movement from DVP model 3 to model 1 is a good place to start..
As the solution is a Global Block Chain Settlement Rail, we can finally end the "Australian unique" archaic CHESS monopoly, and position Australia as part of a global securities trading and settlement world.
Lets Compare the Pair?1. The Old World ASX CHESS
2. The Modern Global Block Chain Ledger Settlement Rail
Time for the ASX to actually understand the technologies and listen to more than a vested interest monopoly, to to reduce the systemic risk which exists in all DvP Model 3 settlement systems.
Australia needs to actually make Australian "innovation" more than marketing "sound bytes", and create an innovation based economy. Its time for regulators to put the national interest first. Time to use best practice Australian Technologies, not ship investment funds offshore as the ASX has recently done.
Time to Buy Australian Made.. End soapbox..
Slide Share
The Global Block Chain Payment Rail
The Global Block Chain Securities Settlement Rail
Links
Why ASX's monopoly on Clearing is hurting our financial services industry
What unmanaged systemic risk looks like
Gross, simultaneous settlements of securities and funds transfers
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