Mekebeb Tesfaye
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The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) have successfully developed an automated settlement solution for tokenized assets, per a press release.
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MAS, Singapore's financial regulator, has said that the Delivery versus Payment (DvP) mechanism will allow for the settlement of tokenized assets across a range of blockchain platforms. The collaborative effort, developed with technology partners Anquan, Deloitte, and Nasdaq, marks the latest phase of MAS' Project Ubininitiative, aimed at investigating how distributed ledger technology (DLT) can be utilized in the clearing and settlement of payment and securities.
The successful trial suggests that an overhaul of traditional financial networks is getting closer. DvP settlement processes involve the simultaneous exchange of securities and monies to guarantee that the delivery of securities occurs only when the payment linked to the securities is made.
Typically, this settlement procedure requires the use of electronic ledgers to track and update records of transactions. However, these processes can be slow and inefficient, as they often rely on manual input. This also increases costs and opens up the possibility of fraud and hacks. MAS and SGX's breakthrough enables FIs to carry out these processes simultaneously, with the transaction obligations recorded on a shared ledger.
By opening up the possibility of performing these processes simultaneously, the blockchain-based DvP mechanism is able to improve operational efficiency and reduce settlement risks, the two parties said.
MAS' involvement could increase the adoption of blockchain for settlement processes. This isn't the first time we've seen blockchain being applied to traditional financial market processes: 75% of financial market infrastructure operators are either using DLT already or working on pilots using the technology, according toFinancial Times citing Nasdaq and Celent data.
However, while the technology offers promise, a number of practical hurdles have impeded developments. For instance, regulatory and legal challenges have tapered the development of Bank of Canada's phase 3 of Project Jasper, which aims to use blockchain for DvP processes. Given MAS is Singapore's financial watchdog, regulatory challenges to facilitate a move to DLT in the city-state appear to be much less problematic.
This could allow Singapore to move ahead of other financial centers in blockchain innovation. Regulators worldwide would be wise to keep tabs on such developments, as they highlight the potential role played by authorities in fueling innovation in financial markets.
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