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DTCC to Build Prototype Supporting US Digital Dollar in Clearing & Settlement Process

The Depository Trust & Clearing Corporation (DTCC), a US post-trade financial services company providing clearing and settlement services to the financial markets, announced on Tuesday that it is developing the first prototype in the industry to examine how a Central Bank Digital Currency (CBDC) might operate in the U.S clearing and settlement infrastructure using distributed ledger technology (DLT).

The prototype, known as Project Lithium, will explore the benefits of a CBDC and inform the future design of the company’s clearing and settlement offerings. Furthermore, DTCC said that the prototype will examine how a CBDC could enable atomic settlement, a conditional settlement that happens if delivery and payment are both received at the same time.

DTCC is developing the Project Lithium pilot through a partnership with ‘The Digital Dollar Project,’ a non-profit led by former U.S. regulators, prominent tech leaders and executives from the consulting firm Accenture.

The aim of the prototype is to demonstrate the direct, bilateral settlement of cash tokens between participants in real-time delivery-versus-payment (DVP) settlement. The pilot will also examine how it can leverage DTCC’s robust clearing and settlement abilities to fully realize the potential benefits of a CBDC, including increased capital efficiency, guaranteed delivery of cash and securities, a more efficient, automated workflow, reduced counterparty risk and trapped liquidity, and enhanced transparency to regulators.

With initial funding from Accenture, DDP continues organizing a series of retail and wholesale pilots to assess how a CBDC might work across the American social landscape and the U.S. financial infrastructure.

Jennifer Peve, Managing Director, Head of Strategy and Business Development at DTCC, talked about the development and said: “DTCC has for several years been experimenting, engaging and leading the conversation around the digitization of financial markets, and Project Lithium represents the next major step in our exploration of DLT, tokenization and other emerging technologies. Project Lithium will lay the groundwork for the financial community to better evaluate the implications of a CBDC across the trade lifecycle, as interest in this style of funding continues to grow.”

Meanwhile, J. Christopher Giancarlo, co-founder and Executive Chairman of The Digital Dollar Project and former chairman of the CFTC, also commented on the development and stated: “A CBDC could improve time and cost efficiencies, provide broader accessibility to central bank money and payments, and all while emulating the features of physical cash in an increasingly digital world. We thank DTCC for their partnership in the first of a series of pilots and their deep commitment to helping the financial community better understand and realize the potential advantages and challenges of a U.S.-backed digital currency.”

Digitizing Securities and Capital Markets

As the markets evolve and become more digitized, the use of fiat currency continues to decline while the adoption of tokenized securities rises at a rapid pace.

Project Lithium is the latest effort by DTCC to continue leading the industry toward greater digitalization. The move by DTCC comes a few weeks ago U.S. President Joe Biden issued an executive order directing the Treasury Department and Federal Reserve to look into a potential CBDC.

In June 2020, DTCC launched a Project Whitney study, a prototype digital infrastructure on Ethereum, a public blockchain, to explore how it can support the issuance, transfer, and servicing of ownership of private digital assets. At the same time, DTCC also released Project Ion, an accelerated settlement project that further explored how the institution can shorten clearing and settlement cycles.

In November last year, DTCC moved a step further and launched a new platform called the ‘Digital Securities Management (DSM)’ platform to streamline the issuance, transfer and servicing of private market securities. The platform represented a major milestone in DTCC’s efforts to bring efficiency, standardization, and automation to the private markets, building upon its Project Whitney case study.

Using Cloud, API and DLT technology, the Digital Securities Management platform aims to provide the foundational infrastructure to enable the tokenization of securities and transform the private market ecosystem.

HKEX Introduces Synapse: A New Settlement Acceleration Platform for Stock Connect

Stock Connect is a mutual market access programme that connects Mainland Chinese markets with Hong Kong markets. The most recent addition to Stock Connect is called HKEX Synapse. The platform intends to standardise and simplify post-trade operations, with the end goal of lowering settlement risks and improving operational efficiency. Institutional investors, especially those whose operations span many time zones, will be able to make use of it as an optional service when it becomes available.

The HKEX reports that the average daily turnover of Northbound Stock Connect reached RMB109.3 billion in the first half of 2023. This is a 5% increase from the previous year as well as a 50% increase over the levels seen in 2020. It is anticipated that HKEX Synapse would be able to manage this ever-increasing volume effectively by providing all market participants with real-time visibility and insights into the settlement process.

Integration will take place between HKEX Synapse and The Depository Trust & Clearing Corporation (DTCC) through the latter’s Institutional Trade Processing (ITP) service. This will make it possible to centralise the matching of international transactions by using the CTM service offered by DTCC. This service will then automatically produce and transmit settlement instructions to the Synapse platform.

The introduction of HKEX Synapse comes at a time when Hong Kong is working to further establish itself as a centre for Web3 companies. However, it is important to point out that the city has also been the location of serious financial scandals, including a Ponzi scam involving the JPEX crypto exchange, which is currently being investigated. This is something that should be taken into consideration.

“This technology-enabled platform will not only improve post-trade efficiencies but will, over time, build a better, stronger ecosystem, supporting both market growth and investor growth strategies,” commented Glenda So, Head of Emerging Business and FIC for the HKEX Group.

DTCC to Acquire Securrency, Advancing in Digital Asset Infrastructure

The Depository Trust and Clearing Corporation (DTCC) has solidified its position in the digital asset sphere by confirming its intention to acquire Securrency, a firm renowned for its expertise in digital asset infrastructure development. This acquisition aligns with DTCC’s strategic vision of seamlessly integrating digital assets with its pre-existing products and services. The specifics of the deal remain confidential, but indications suggest a closure “in the coming weeks.”

Post-acquisition, Securrency will undergo a rebranding transition to become DTCC Digital Assets. This name change won’t affect the existing workforce. The senior leadership and an additional contingent of around 100 employees will remain part of the newly branded entity.

Securrency’s growth trajectory has been bolstered by investments from significant players like State Street, U.S. Bank, WisdomTree, and Abu Dhabi Catalyst Partners. In addition to these financial endorsements, the firm has collaborated with GK8, a company recognized for its proficiency in cybersecurity and digital asset custodianship.

The official statement from DTCC highlights its plan to make Securrency’s groundbreaking technology available for licensing. This move is anticipated to catalyze the interoperability of diverse distributed ledger systems. Notably, the technology has already been incorporated into the WisdomTree Prime platform, a digital asset management tool.

Originating in the U.S., DTCC has established itself as a premier clearing and settlement service, with regional branches worldwide. In 2022, DTCC and its affiliates processed a staggering $2.5 quadrillion in securities settlements. Furthermore, the company’s depository division managed the custody and servicing of securities approximating $72 trillion, sourced from over 150 countries and territories.

Although blockchain technology has been in existence for a while, its integration into mainstream sectors only commenced around 2020. DTCC marked its foray into this space in December, participating in a pilot project focused on tokenized securities settlement using a simulated digital dollar. This trial, executed in partnership with the Digital Dollar Project, tested transactions with tokenized securities using T2, T1, and T0 settlements.

On October 19, 2023, DTCC announced its definitive agreement to acquire Securrency Inc., emphasizing its commitment to bridging industry-standard practices with advanced digital technology. This move is set to position DTCC as a global leader in the digital asset sector. Securrency’s assimilation into DTCC will culminate in its rebranding to DTCC Digital Assets, with key personnel like Nadine Chakar, CEO of Securrency, taking on pivotal roles in the new organizational structure.

By amalgamating DTCC’s digital prowess with Securrency’s technology, DTCC aims to spearhead the development of its digital asset platform, emphasizing institutional DeFi. Furthermore, DTCC will take the reins in leading the global development of a robust digital infrastructure, licensing Securrency’s technology, and offering specialized services.

DTCC, with its rich 50-year legacy, stands as the world’s premier post-trade market infrastructure. Its global presence spans 20 locations, offering automated, centralized, and standardized financial transaction processing. In 2022, the firm’s transaction value reached an astounding U.S. $2.5 quadrillion, with its depository subsidiary managing securities valued at U.S. $72 trillion.

Securrency stands out as an institutional-grade digital asset infrastructure provider. It offers transformative solutions facilitating the trading, settlement, and servicing of digital assets. Its innovative product suite is poised to accelerate the institutional adoption of blockchain technology.