New York State-regulated Paxos Trust Company has used blockchain technology to achieve same-day settlement for a selection of U.S. equity trades, with the help of Credit Suisse and Instinet.
The trades occurred on March 4, at 11 a.m. ET and 3 p.m. ET and were settled at 4:30 p.m. ET, demonstrating the platform’s ability to enable same-day settlement for trades conducted throughout the day, the companies said. (In the legacy system, settlement can only occur the same day if trades are completed before 11 a.m. ET.)
This seemingly nerdy enterprise blockchain pilot looks much more important in light of the recent share-trading fiasco involving the Wall Street Bets movement, which saw trading platform Robinhood fall foul of the arcane infrastructure used to settle U.S. equities.
For a couple of years now, Paxos, Credit Suisse and Instinet have been advancing simplified settlement of trades using a blockchain (Paxos Settlement Service is built using a homespun variant of Ethereum code). Back in February of 2020, the three firms claimed to have done the first live blockchain-based settlement of U.S. equities – although Patrick Byrne’s tZERO project had previously carried out a blockchain-based settlement of shares in Overstock.
The Paxos settlement platform operates under “No-Action Relief” from the Securities and Exchange Commission (SEC) – basically when the regulator accepts a commonsense approach to something which is not technically legal. Paxos will apply for full clearing-agency registration with the SEC, and hopes to secure registration in 2021, it said.
“Settlement in U.S. equities is opaque and laden with unnecessary delays, capital costs and expenses,” said Paxos CEO Charles Cascarilla in a statement, adding:
“We are working hard to improve settlement for the benefit of all market participants. An upgraded settlement system can create safer, fairer and more open capital markets that foster innovation. Modern technology makes the risks of the current system obsolete while also enabling greater trading liquidity with greater ownership transparency.”
The Paxos permissioned blockchain system is interoperable with the legacy clearing system and can facilitate settlement on any time cycle, Cascarilla said. Paxos also intends to run multilateral netting processes in real-time to ensure fast and transparent net settlement of transactions.
“We’re excited to stress test same-day cycles on Paxos, because our long-term goal is to always offer our clients more choices, advanced technologies, and greater efficiencies in both their settlement processes as well as time horizons,” Luke Mauro, global head of operations at Instinet, said in a statement.