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A paper from R3 proposes a new securities settlement model that offers the ability to settle both gross and netted trades instantly using central bank digital currency (CBDC) and digital assets on a blockchain infrastructure. Existing delivery versus payment models exist on a continuum from intraday gross settlement-which minimizes settlement risk while requiring a great deal of liquidity-to delayed batch settlement-which offers netting efficiencies but delays final settlement. Market participants acknowledge the benefits of real time gross settlement but continue to rely on the operational and liquidity advantages of delayed batch settlement. The R3 model purports to be a "best of both worlds" model.

The European Central Bank (ECB) published an update on its explorations of central bank money settlement of wholesale transactions on distributed ledger technology (DLT) platforms. Together with interested market players, the Eurosystem intends to test three cross-platform settlement solutions: The first is a "trigger" solution developed by the Deutsche Bundesbank, in which euro central bank money settlement would take place on the existing TARGET settlement system. The second is a "TIPS Hash-Link" solution developed by the Banca d'Italia, in which settlement would take place in an infrastructure based on TIPS, which is currently used for settling instant retail payments. The third is a full-DLT solutions developed by the Banque de France, in which euro central bank money settlement would take place on a DLT platform, operated by the central bank or jointly with other parties.

The Securities Industry and Financial Markets Association (SIFMA) published the results of Regulated Settlement Network (RSN) proof-of-concept that explored the possibilities for shared ledger-based digital settlement using U.S. Treasury securities and tokenized cash. It found that multi-asset and cross-network settlement could be enhanced through a shared-ledger financial market infrastructure (FMI) that contains tokenized securities, central bank deposits, and commercial bank deposits where each institution operates its own partition. The network enabled a common settlement infrastructure that is 24/7, programmable, and offered precise settlement capabilities to allow financial institutions to optimize their collateral and liquidity positions. At the same time, the network alleviated challenges such as market fragmentation and uncertainty throughout the settlement process.

The New York Fed provided an update on its Project Cedar,  the inaugural project of the New York Innovation Center (NYIC). It built and tested a working prototype distributed ledger technology (DLT) solution for wholesale FX settlement that results in instant and atomic settlement in which a wholesale central bank digital currency (CBDC) is the settlement asset. "Results from the experiment indicated that settlement could occur in fewer than 10 seconds on average and that horizontal scaling was possible. This indicates that a modular ecosystem of ledgers has the potential for continued scalability, and that DLT could enable settlement times well below the current industry standard of two days, with the added guarantee of atomic settlement."

The World Federation of Exchanges (WFE) published a paper on the causal relationship between distributed ledger technology (DLT) settlement latency and market quality in the cryptocurrency domain. Focusing solely on public permissionless DLT networks, it finds that settlement latency significantly lowers liquidity and increases transaction costs. In addition, through the Huang and Stoll (1997) spread decomposition, we document that DLT settlement latency reduces the adverse selection costs and increases the inventory management costs faced by liquidity suppliers. Moreover, these effects are more pronounced in smaller trading venues and for the native cryptocurrency of the settlement blockchain. More broadly, this paper highlights the balance between decentralized, near-instantaneous settlement cycles offered by DLT and the potential adverse impacts on market quality.

Paxos Trust Company has completed a same-day settlement of US-listed equity trades in partnership with Instinet and Credit Suisse on its Paxos Settlement Service permissioned blockchain solution. Paxos said the project demonstrated its ability to enable same-day settlement for trades conducted throughout the day. In the current system, settlement can only occur the same day if trades are completed before 11 AM ET and therefore is rarely utilized. The platform is said to be interoperable with the legacy clearing system and can facilitate settlement on any time cycle.

This article sheds light on the application of blockchain technology to the existing financial market infrastructure, namely to post-trade settlement. We show how blockchain technology can facilitate trustless delivery vs. payment (DVP) settlement without any intermediary. Moving settlement processes entirely on decentral technologies makes the settlement process more efficient since it decreases the associated transaction costs and reduces involved risks. Hence, the blockchain-based multichain atomic swap technology will become a peer-to-peer alternative to a central clearing counterparty that normally facilitates the DVP settlement of financial assets.

The Bank for International Settlements, the Swiss National Bank and SIX successfully tested the integration of wholesale central bank digital currency (CBDC) settlement with the core banking systems of five commercial banks. The experiment explored the settlement of interbank, monetary policy and cross-border transactions on the test systems of SIX Digital Exchange, SIX Interbank Clearing (the Swiss real-time gross settlement system) and the core banking systems of Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS. The test was part of Project Helvetia, an ongoing investigation into the settlement of tokenised assets with wholesale CBDC.

"New technologies have the potential to modify the way financial transactions are settled. DLT platforms may allow for an expanded set of DvP settlement, for instant settlement, or for both at once. While instant settlement may be desirable for some trades in some markets, such settlement may not be desirable in all cases as it may come with drawbacks."

As part of the European Central Bank's (ECB) explorations, Boerse Stuttgart and six German banks tested the settlement of exchange transactions with blockchain-based securities against central bank money for the first time. The settlement solution was linked to the Deutsche Bundesbank's trigger solution and thus to the traditional euro payment system. The tests showed that the settlement processes can be mapped automatically, step by step and directly between the trading participants - efficiently, securely and without counterparty risk. The settlement time was reduced from two days to just a few minutes. https://group.boerse-stuttgart.com/media/li2dfavi/241001-mr-ecb-blockchain-tests.pdf

Intesa Sanpaolo issued €10 million in commercial paper (CP) using Clearstream's D7 tokenization platform, using the Bank of Italy's TIPS Hashlink solution for settlement. TIPS Hashlink is one of three payment options that are part of the European Central Bank's (ECB's) distributed ledger technology (DLT) based wholesale settlement trials. Rather than use the on-chain central bank money (i.e., central bank digital currency) being used in the other two trails, the Hashlink interoperability mechanism is used to settle the transaction using the ECB-run Trans-European Automated Real-time Gross settlement Express Transfer (TARGET) Instant Payment Settlement (TIPS) system. This is apparently only the second test of this platform, the other being a €25 million Cassa Depositi e Prestiti (CDP) digital bond issue in July 2024. https://www.ledgerinsights.com/cdp-issues-digital-bond-on-polygon-blockchain-using-new-italian-law/

The Regulated Liability Network (RLN) completed its proof-of-concept phase on 6 July, proving it can achieve legal instant dollar settlement anywhere in the world. Even as a dollar settlement network, it goes further than wholesale CBDC projects, which are essentially tokenized versions of 24/7 real-time gross settlement systems, because the RLN would include commercial bank money as well as central bank money. Enabling 24/7 cross-border dollar settlement anywhere in the world would drastically improve the payments landscape, reducing risks and improving transaction speed, freeing up liquidity to be better used elsewhere. This would help to cement the dollar's status as the preferred currency for international trade and foreign exchange reserves. Multi-currency CBDC platforms like mBridge are springing up, seeking to give members a means of transacting locally without using dollars. However, with a global 24/7 dollar settlement system in place, there might be less demand for such systems.

The World Economic Forum (WEF) published a report that explores the potential of wholesale central bank digital currency (CBDC) to unlock new economic models and integration points. Four areas of differentiated value for are highlighted. First they can realize a global settlement window by harmonizing foreign exchange (FX) and securities markets settlement times to overcome operational hour disparities among key trading corridors. Second, they can expand payment-versus-payment arrangements through cost-effective solutions that can support a diversity of currencies to enhance currency liquidity. Third, they can mutualize data across parties by securely transmitting settlement data across parties and jurisdictions to support automation, reduce settlement risk, and enhance trade and post-trade activities. Lastly, they tokenize credit risk-free settlement media for settling tokenized securities and supporting emerging tokenized payment instruments.

The Bank for International Settlements (BIS) published the results of the Project Meridian FX experiment that demonstrated the atomic settlement of FX transactions between different wholesale payment infrastructures across jurisdictions, and between an RTGS system and a DLT platform. Using an emulated UK real-time gross settlement (RTGS) system, the project connected to three experimental interoperability solutions from the Eurosystem: DL3S (developed by the Bank of France), TIPS Hash-Link (developed by the Bank of Italy) and the Trigger Solution (developed by the Deutsche Bundesbank). In each case, payment-versus-payment (PvP) FX settlements were successfully orchestrated.

The Bank for International Settlements (BIS) Innovation Hub, Bank of France and Swiss National Bank launched Project Jura that, together with a private sector consortium led by Accenture, will conduct an experiment using wholesale central bank digital currency (wCBDC) for cross-border settlement on a distributed ledger technology (DLT) platform. The private sector consortium includes Credit Suisse, Natixis, R3, SIX Digital Exchange and UBS. It will involve the exchange of financial instruments against a euro wCBDC through a delivery versus payment (DvP) settlement mechanism and the exchange of a euro wCBDC against a Swiss franc wCBDC through a payment versus payment (PvP) settlement mechanism. These transactions will be settled between banks domiciled in France and in Switzerland, respectively.

Bank of America joined Credit Suisse and Nomura's Instinet on Paxos Trust's blockchain-based stock-settlement network that settles trades in minutes rather than days. Paxos Settlement Service is a private, permissioned blockchain solution designed to allow two parties to bilaterally settle securities trades directly with each other. The platform is interoperable with the legacy clearing system and can facilitate settlement on any time cycle. Bank of America has been conducting internal transactions for the past few months and, if approved as a clearing agency, will offer the service to clients next.

On June 18th and 25th, the Banque de France successfully carried out a fifth experiment on central bank digital currency (CBDC) with a consortium of actors driven by LiquidShare as part of the experimental program launched in March 2020. The experiment involved the simulation on a private blockchain of the issuance and settlement of unlisted securities and of the settlement of listed securities. Settlements of securities were simulated by CBDC issued on the blockchain. The experiment required the development and deployment of smart contracts so that the Banque de France could issue and control the circulation of CBDC tokens while ensuring that each transfer takes place simultaneously with the delivery of the securities.

Societe Generale quietly achieved a first: the settlement of a securities trade using a wholesale central bank digital currency (CBDC). The French bank issued a covered bond in the form of a securitised token on a public blockchain. It then bought back the debt using digital euros issued by the Banque de France. The deal was not large - at €40 million it could be described as a token gesture - but it's a significant step in the creation of smart contracts that enable instant trade settlement. CBDC could slash the time and cost of settlement, unlocking trapped capital that could be used for other activity and so boosting intraday liquidity.

"Trades in today's financial system are inherently subject to settlement uncertainty. This paper explores tokenization as a potential technological solution. A token system, by enabling programmability of assets, can be designed to eradicate settlement uncertainty. We study the allocations achieved in a decentralized market with either the legacy settlement system or a token system. Tokenization can improve efficiency in markets subject to a limited commitment problem. However, it also materially alters the information environment, which in turn aggravates a hold-up problem. This limits potential gains from resolving settlement uncertainty, particularly for markets that depend on intermediaries."

The Bank for International Settlements (BIS) Innovation Hub and Bank of England have launched Project Meridian FX to experiment with FX transaction synchronization concepts. This will be achieved via a "synchronization operator" (SO) that uses distributed ledger technology (DLT) to interlink central bank settlement (RTGS) systems, and orchestrate the settlement of a payment versus payment (PvP) FX transactions. The experiments, which will take place towards the end of 2024, will connect Meridian FX's SO to the three solutions being explored as part of the Eurosystem's broader exploratory work on wholesale settlement.