Blockchain & Money: Session 21: Post Trade Clearing, Settlement, and Processing, by M.I.T. Sloan School of Management with Professor Gary Gensler

Session 21: Post Trade Clearing, Settlement, and Processing

• Overview: Readings and Study Questions; Clearing and Settlement Services; Blockchain Technology Applicability; Blockchain Technology Projects; Derivatives Common Domain Model; Conclusions.
• Session 21: Study Questions
  • What are the opportunities of blockchain technology to lower costs and counter-party risks in the clearing, settlement and processing of financial transactions?
  • Why have the applications proposed to date almost exclusively been focused on permissioned or private distributed ledger technology?
  • What lessons might be drawn from the ongoing projects–ASX for equities, ISDA for swaps, others?

• Session 21: Readings
  • ‘Blockchain could save investment banks up to $12 billion a year: Accenture’, Reuters.
  • ‘ISDA Publishes Digital Iteration of the Common Domain Model’, ISDA.
  • ‘ASX’s Proposed Distributed Ledger and the Future of Clearing and Settlement’, Leung, Medium.
  • Optional: ‘Distributed ledger technology in payments, clearing, and settlement’, Mills.

• Final Projects: Assessing Use Cases
  • What is the value creation proposition and what ‘pain point’ is being solved?
  • Which transactions and data need recording?
  • Which multiple stakeholders need write and read access to ledgers?
  • Which costs of verification or networking can be reduced?
  • What are competitors doing to address similar value propositions or markets?
  • Why are append only logs and multiple party consensus the best solution?
  • If permissionless applications, why is native token the best solution?
  • What are tradeoffs of scalability, performance, privacy, security, & coordination?
  • Can permissioned blockchain or a traditional database adequately address use case?
  • How can broad adoption be realized?
  • What is the customer interface and how is it better than current interface?

• Use Cases: Assessing Costs & Benefits
  • Costs of technical challenges and transition?
    • What tradeoffs are necessary?
      • scalability, performance, privacy, security, interoperability & coordination
    • Can Permissioned blockchain or Traditional Database adequately address use case?
    • How can broad adoption be realized?
  • Are net benefits sufficient?

• Blockchain Technology Projects
  • Australia–ASX CHESS project with Digital Asset system (2016-21)
  • Estonia–Tallinn Stock Exchange Exploring Proxy Voting & Registration (2018)
  • India–SEBI, Blockchain Technology exploration announced (1/2018)
  • Japan–Japan Exchange Group–Post Trade Matching Test (2017-18)
  • US–NADAQ Linq private securities platform (2015) & Mutual Fund project (2018)

• Derivatives Common Domain Model
  • International Swap Dealers Association project
  • Seeks to use Smart Contracts to Automate Contractual Terms
  • Machine Readable standard representation of Events and Actions over the life of a Derivatives Trade
  • Uses Java and JavaScript Object Notation
  • CDM 1.0 includes ‘new transaction’, ‘rate reset’, ‘partial termination’, ‘allocation’, ‘novation’ and ‘compression’ events

• Spring 2019 Policy Course
  • Public Policy & Private Sector (15.S66) Tuesday 5-8pm
    • Explores the intersection of public policy and the private sector
    • Senior level public policy guests in discussion-based course
    • Key economic policy–technology, trade, tax, financial, and competitions policies
    • Tentative Guest Speakers–Sheila Bair, Sara Bianchi, Steve Moore, John Podesta, Sharis Pozen, & Miriam Shapiro
    • Taught with Simon Johnson

• Spring 2019 Blockchain Technology Courses
  • Blockchain Labs (15.S68) Tuesday 1-2:30pm
    • Action Learning working on Digital Currency Initiative projects
    • With Simon Johnson, Neha Nerula, Michael Casey
  • Emerging Blockchain Havens (15.228 B) H3 Monday 6-9pm
    • Student Let trip to Estoniz and Switzerland during Spring break & SIP weeks
  • Crypto Finance (15.S04) H4 Tentatively Mon/Wed 10-11:30am
    • With Antoinette Schoar and Leonid Kogan

• Conclusions
  • Clearing and Settlement Systems critical to Capital Markets Roles
  • There are still Many Counter-party Risks and Inefficiencies
  • Traditional Systems have Multiple Parties Sharing & Reconciling Ledgers
  • Australia and others Exploring and Working on Permissioned Applications
  • Performance, Efficiency, Resiliency, Security, Privacy and Regulatory Compliance key to Adoption
  • Blockchain Technology may Provide Significant Benefits

Biblio:

• Gary Gensler. 15.S12 Blockchain and Money. Fall 2018. Massachusetts Institute of Technology: MIT OpenCourseWare, https://ocw.mit.edu. License: Creative Commons BY-NC-SA.
• Video Link: Session 21: Post Trade Clearing, Settlement, and Processing.
• Slides Link: Session 21: Post Trade Clearing, Settlement, and Processing, Slides.