MAS and SGX use Blockchain for settling tokenised assets

The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) have successfully developed delivery versus payment (DvP)* capabilities for the settlement of tokenised assets across different Blockchain platforms**. This will help simplify post-trade processes and further shorten settlement cycles, the organisations said.

The DvP prototypes, developed with technology partners Anquan Capital, Deloitte and Nasdaq, demonstrated that financial institutions and corporate investors are able to carry out the simultaneous exchange and final settlement of tokenised digital currencies and securities assets on different Blockchain platforms. The ability to perform these activities simultaneously improves operational efficiency and reduces settlement risks.

The collaboration also demonstrated that DvP settlement finality, interledger interoperability and investor protection can be achieved through specific solutions designed and built on Blockchain technology. Following its conclusion, MAS and SGX have jointly published an industry report, which provides a comprehensive view of automating DvP settlement processes with smart contracts***. The report also identifies key technology and operational considerations to ensure resilient operations, and defines a market framework that governs post-trade settlement processes such as arbitration.

Sopnendu Mohanty, Chief FinTech Officer, MAS, said, “Blockchain technology and asset tokenisation are fuelling a new wave of innovation globally. This project has demonstrated the value of Blockchain technology and the benefits it can bring to the financial industry in the short to medium term. The concept of asset tokenisation, as well as other learnings gleaned from this project, can potentially be applied to a broad spectrum of the economy, creating a whole new world of opportunities.”

Tinku Gupta, Head of Technology at SGX and Project Chair, said, “Based on the unique methodology SGX developed to enable real-world interoperability of platforms, as well as the simultaneous exchange of digital tokens and securities, we have applied for our first-ever technology patent.”

Juzar Motiwalla, Co-founder of Anquan Capital noted, "The evolution of new forms of tokenised assets is accelerating the search for new business models, which in turn intensifies the search for dramatically improved settlement engines. With a view to revolutionising settlements, Anquan has introduced novel ways of enabling atomic swap***, high throughput, security and privacy on its Blockchain platform. We see keen interest in this across multiple sectors, including financial services and digital advertising."

Ho Kok Yong, Financial Services Industry Leader, Deloitte Southeast Asia noted, "Deloitte is glad to have the opportunity to extend our expertise in Blockchain technology in conjunction with our APAC Blockchain Lab to make this collaboration a success. The prototype was designed on two separate ledgers (cash and securities) on different Blockchain technologies to successfully mitigate counterparty risks and achieve DvP settlement finality. Additionally, features such as time boundaries, multi-signature and arbitrator design facilitate a secure and transparent transaction thus strengthening investors’ confidence."

Magnus Haglind, Senior VP and Head of Product Management, Market Technology, Nasdaq said, "In collaborating with SGX and MAS on this unique ecosystem of converging Blockchains, we have demonstrated how to create interoperability between multiple networks to secure settlement between different assets – this is a major step in the application of blockchain to the capital markets. By leveraging our Nasdaq Financial Framework, we can create this interoperability through an agnostic approach in relation to specific distributed ledger technology (DLT)  selection, as well as have the flexibility to support various business and settlement models depending on the market structure and readiness of participants."

*Delivery versus payment (DvP) is a settlement procedure where securities and monies are simultaneously exchanged to ensure that delivery of securities occurs only if the corresponding payment is made. 

**MAS and SGX announced the collaboration in August this year, one of two spinoffs from Project Ubin. The project is a collaboration between government and industry to explore the use of distributed ledger technology (DLT) such as Blockchain for the clearing and settlement of payments and securities. Project Ubin was started in November 2016 to understand DLT’s potential in making financial transactions and processes more transparent, resilient and at lower cost. 

The first two phases of Project Ubin focused on domestic inter-bank payment and settlement: 

 Phase 1 achieved the objectives of producing a digital representation of the Singapore dollar for interbank settlement, testing methods of connecting bank systems to a DLT, and making the MAS Electronic Payment System (MEPS+) interoperate with the DLT for automated collateral management.

 Phase 2 successfully developed software prototypes of three different models for decentralised inter-bank payment and settlements with decentralised netting of payments in a manner that preserves transactional privacy. The source code and technical documentations are available for public access under Apache License, Version 2.0. 

Central banks, financial institutions, as well as academic and research institutions are encouraged to tap the open source code to facilitate their experiments, research and innovation. 

***Smart contracts are self-executing contracts where contractual terms or business logic are codified as software code to be executed upon the fulfilment of predefined conditions. Atomic swaps are smart contracts that convert one cryptocurrency to another without using trusted third parties.