The World’s Largest CSDs Are Forming a New Blockchain Consortium
Some of the world's biggest central securities depositories (CSDs)
are uniting to build their own blockchain consortium. Informally called the CSD Working Group on DLT, and comprised of institutions tasked with holding vast amounts of the world's financial instruments, the fledgling consortium is emerging from talks that have been ongoing since last year. While the formal membership of the group has yet to be revealed, CoinDesk has learned that early participants of the exploratory effort met last month in London and that the work is ongoing.
Hosted by 'Big Four' consulting firm EY, the meeting was designed to give the companies, including the DTCC, Canada’s CDS, the Moscow Exchange Group and South Africa's Strate, a better understanding of how blockchain technology might change their roles in the future. In interview, the director of Moscow Exchange Group’s National Settlement Depository, Artem Duvanov, explained to CoinDesk the origins of the idea for the consortium and its mission going forward.
He told CoinDesk:
"We realized there are lots of consortia, but mostly they are for banks. If we talk about CSDs, we don't have our own consortium aimed to our needs. The idea was to create one."
What started as informal conversations last October have since evolved into the more formal working group, with members including Russia’s National Securities Depository, Switzerland’s SIX Securities Services, the Nordic subsidiary of Nasdaq and Chile's DCV. Last week, members of the group published the first results of its partnership: a document describing the product requirements for a proxy voting solution for general meetings, built using distributed ledger technology and 'synchronized' with Swift's messaging standard.
Using an unspecified technology, the proposal requires that the platform should accommodate up to 100,000 voting parties and conduct at least 50 transactions per second. While the official stated objective of the working group is to demonstrate the business value of the technology, Duvanov and Strate CEO Monica Singer revealed to CoinDesk that that is only part of the minimum viable product being tested. And, though not every member of the working group appears to have been involved in the London meeting, a second objective of the group is to show the value of collaboration in its own right. "Basically, we proved that both hypothesis are true," said Duvanov.
As intermediators, CSDs might at first glance seem ripe to be cut out of the transaction flow by a shared, distributed ledger. But according to Singer, who 20 years ago helped digitize South Africa's paper-based settlement process, the distributed nature of CSDs actually makes them perfect adopters of the technology. Global central securities depositories are broken up into six regions, including the Americas' Central Securities Depositories Association (ACSDA), the European Central Securities Depositories Association (ECSDA) and the Africa & Middle East Depositories Association (AMEDA).
To fully capitalize on that distribution the goal of the consortium, according to Singer, who is also the vice president of AMEDA, is to gather leading CSDs from each of the regions, and then grow from there. Singer echoed a sentiment also expressed by Duvanov that each depository on its own is already largely optimized to provide the best possible service to banks, brokers and other financial institutions, but that efficiencies can be achieved in the overarching network. By working together to ensure that CSDs from each region are represented, Singer said the consortium could potentially unleash network effects previously unimagined by any single member.
"I have a mandate from my region that whatever we discover in the blockchain space I will bring it to the region, and I will bring it with me. So you want to uplift everybody."
Focus on standards
Still, even as the members are expected to share knowledge about how to optimize their services for blockchain, Duvanov emphasized they are not currently building a single solution. Rather, each group is building its own platform designed to interoperate with the others. For example, in May, CoinDesk reported on the Moscow Exchange Group's e-proxy voting solution built using Hyperledger Fabric, and in February we reported on Strate’s early experiments using Chain, Hyperledger, Corda and ethereum.
To help ensure each consortium member’s technology interoperates, Duvanov said he met early on with Swift's head of standards, Stephen Lindsay, in an effort to align the various efforts with the ISO20022 messaging standard. "We don’t have the ambition yet to create a new standard," said Duvanov. "We are just trying to ensure that we are all moving in the same direction." Swift's head of research and development, Damien Vanderveken, confirmed with CoinDesk in a statement that his company was providing support to the working group to help them leverage existing business standards for the distributed ledger technology application.
"ISO 20022 will provide a great foundation, in terms of both existing business content and approach," said Vanderveken. "That can accelerate the implementation and acceptance of DLT technology for industrial solutions." As for Singer, she expects the founding membership to consist of the DTCC, Canada’s CDS, The Moscow Exchange Group and Strate, while Duvanov predicted the group could include as many as six depositories. Not all CSDs belonging to the working group are actively participating in the development of proxy voting case. However, Duvanov expects more members will eventually take part. "When we start moving this working group closer to standardization, I think the everyone will participate more closely," he said.
Currently, the potential founding members of the CSD consortium are in discussions to help define the parameters of the collaborative effort, according to Duvanov – a process he expects to end in the coming months. In addition to seeking more efficient ways of voting using blockchain tech, Singer says a proof-of-concept is currently being tested for an undisclosed application that, if successful, could eventually help connect the US and Canada. Further, Duvanov reported early work conducted by Russia's NSD to move commercial papers to a blockchain is also being considered for possible integration.
"The next step will be to create the consortium, which will be an official legal entity and it will not be limited to one use case, it will have many use cases."