Paxos, Credit Suisse Facilitate First US Equities Settlement on Blockchain
Blockchain

Paxos, Credit Suisse Facilitate First US Equities Settlement on Blockchain

Last updated on

On February 20th, 2020, Paxos announced the operational launch of a new service: Paxos Settlement Service. In collaboration with Switzerland-based Credit Suisse and Nomura-owned broker-dealer Instinet, the first U.S.-listed equities have been settled using blockchain technology.


Paxos Settlement Service Explained

In late 2019, the U.S. SEC granted Paxos a no-action letter allowing the company to further develop its plans of integrating blockchain technology with the settlement of securities. Now, the service is live.

Based in New York, Paxos collaborated with investment firm Credit Suisse and broker-dealer Instinet to bring Paxos Settlement Service to life. Through the service, cash can be settled for regulated U.S. equities on Paxos’ private network.

The project was in development for quite some time. According to Melayna Ingram, Paxos Director of Securities Product,

We spent years studying the groundwork to get the pilot running. Now it’s live and settling stock. We are calling it a pilot because we are approved to do this under a limited number of participants and volume and a limited list of securities that are permitted.” 

Charles Cascarilla, CEO and Co-Founder of Paxos added,

“Launching Paxos Settlement Service under No-Action relief is the first step in our journey to transform post-trade infrastructure in the securities industry. We’ve worked closely with Credit Suisse and Instinet to build a solution that can deliver long-term cost benefits and together we will refine the system in a live environment.

The pilot has the regulatory green light to operate for a period of two years. Seven participants will collaborate to manage up to 100,000 trades each day. The news marks the first time U.S. equities were settled through an automated, outside system since the Depository Trust & Clearing Corporation (DTCC) was formed.

Société Générale to Join the Paxos Settlement Service

By the end of Q1 2020, Société Générale will utilize the Paxos Settlement Service. As France’s third largest bank by assets, the move won’t be Société Générale’s first foray into the blockchain realm.

In April of 2019, Société Générale issued a €100 million covered bond as a security token. The bank leveraged the Ethereum blockchain for the transaction.

By the end of 2020, Paxos says it will submit an application to become a fully registered clearing agency. If approved by the SEC, Paxos could offer its services to all broker-dealers to settle U.S. equities on a blockchain. Currently, just seven licenses exist throughout the country.

The company uses a private, permissioned blockchain solution — a fork of Ethereum. Emmanuel Aidoo, head of digital asset markets at Credit Suisse said,

“The initiative has the potential to deliver great efficiency and cost savings to the post-trade cycle. Paxos Settlement Service introduces blockchain technology that’s compliant with regulations and allows us to take important strides towards evolving market structure and unlocking capital that is tied up in legacy settlement processes.”

What do you think about the Paxos Settlement Service? Will Paxos become a fully registered clearing agency? We want to know what you think in the comments section below.


Image courtesy of PRNewswire.

February 22, 2020

About Author

Avatar

Tim Fries Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions (IoT).