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by Pete Harris, Aug 11, 2016

For SETL’s Blockchain Settlement Platform, It’s All About the Payment


Bloomberg Terminal blockchain

Although SETL, the London-based institutional payment and settlement startup, has launched a commercial blockchain platform named OpenCSD – for Central Securities Depository – the company maintains a major focus on payments between counterparties to a transaction. That’s because, as CEO Peter Randall puts it, payments bring “settlement finality.”

By settlement, Randall is referring to the processing that takes place in a securities transaction after the actual trade is agreed upon. This involves the exchange of ownership between counterparties of the actual securities that have been traded, along with a corresponding transfer of funds. A settlement system that only handles the exchange of securities isn’t adequate, says Randall, since with all financial transactions “payments are the end product of all trades … so [a settlement system] needs payments built in.”

Founded in 2015 and privately funded, one of SETL’s strengths, says Randall, is an executive team and board members who understand the challenging requirements of financial institutions and how to apply technology to meet them, as opposed to starting with a broad technology solution and then looking for financial services problems to solve.

Randall himself is a veteran of the financial markets who founded and led the Chi-X Europe electronic equities trading system, and later was CEO of the Equiduct Pan-European Exchange securities marketplace. So he knows the business of securities trading, and the technology that’s required to succeed in a very competitive marketplace, with shrinking margins and ever-increasing regulatory requirements. He believes the post-trade space is ripe for disruption and that blockchain can potentially underpin that.

Chairman Sir David Walker is a former Executive Director of the Bank of England, and also a former Chairman of Barclays, Morgan Stanley International and one of the U.K.’s Securities and Investments Board financial regulators. Recently joining the board are former Deputy Governor of the Bank of England Rachel Lomax and Ed Richard, former CEO of Ofcom, the U.K. telecommunications and media regulator.

While Randall puts much emphasis on the level of “engagement” that SETL’s business-oriented team can direct toward opportunities, as well as the company’s understanding of regulatory regimes, the company’s OpenCSD platform has been built – after an extensive search of existing alternatives – to meet the functional and performance demands of the financial marketplace.

Randall says that a financial markets blockchain platform needs to possess the following capabilities:

  • It must be able to process transaction peaks of over 10,000 per second.
  • It must be able to sustain a high throughput of transactions in excess of one billion per day.
  • It needs to have participant identity functionality built in across all of its functions, in order to support regulatory requirements, such as Anti-Money Laundering and Know Your Customer.
  • It needs to be able to operate with real-world assets, such as fiat currencies and existing securities and financial instruments.
  • It needs to be able to interoperate across borders with other blockchains, because the regulatory regimes of different countries will require separate blockchains.

SETL has applied what Randall describes as “very detailed engineering” in developing OpenCSD to meet his stated requirements, which for the most part is proprietary, relying on minimal licensed technology. As for deployment, Randall says that SETL is open to different models, whether it be a traditional inhouse approach or an “as-a-service” cloud model.

The “Open” part of the OpenCSD name refers to the broad uses to which its distributed ledger might be applied. Randall suggests that existing securities depositories might be customers, as well as other financial institutions who want to set up securities depository functions, for markets ranging from private equity to foreign exchange.

In a recent statement, Bank of England Governor Mark Carney said that the central bank planned to make its financing available to new (regulated) fintech players in the wholesale securities settlements and payments space in order to “enable innovation and competition, without compromising stability.” This move, Randall says, will encourage new players to enter the settlements marketplace, and so he is expecting significant demand for OpenCSD.

For now, Randall says that SETL is working on projects across six continents, though he declines to identify any partners, with the exception of Computershare in Australia. Computershare is working with SETL on a securities registry, initially for its local market but which could be rolled out internationally.

For the project, Computershare is bringing together “issuers, asset owners, brokers, regulators and market infrastructure providers” while SETL will provide the “finance-grade solution.”

Image Guilhem Vellut

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Pete Harris

Lighthouse Partners, for The Distributed Ledger
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