Advancing Financial Infrastructure Through a Multi-Asset Transaction Settlement Exploration

Analyzing the Potential for a Unified Settlement Framework in Diverse Asset Transactions

Under the leadership of SIFMA, the Securities Industry and Financial Markets Association, the working group comprised Citi, JP Morgan, Mastercard, Swift, TD Bank, US Bank, USDF (a membership-based association of insured depository institutions), Wells Fargo, Visa, and Zions Bancorp. In addition, Digital Asset provided the fundamental technology for the PoC, Swift provided the network interlinking the prototype for cross-network interoperability, and Sullivan & Cromwell LLP provided legal services. Deloitte & Touche LLP provided advisory services to SIFMA.

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In addition, the initiative was also participated in by the New York Innovation Center (NYIC) at the Federal Reserve Bank of New York, the International Swaps and Derivatives Association (ISDA), Tassat Group, the MITRE Corporation, and BNY, DTCC, and Broadridge. The group subsequently conducted a series of tests to determine the feasibility of achieving simultaneous and coordinated 24/7 settlement capabilities for multi-asset and cross-network transactions that involved tokenized central and commercial bank deposits, US Treasury securities, and other regulated assets. This was done following the initial PoC in July 2023. Currently, the settlement of commercial bank deposits, wholesale central bank deposits, US Treasuries, and investment grade debt securities is conducted on separate, isolated systems, necessitating interoperability. This implies that transaction processing is inefficient, operational risks are elevated, costs are elevated, transparency is diminished, and settlement times are prolonged.

The most recent investigation into the RSN PoC investigated the potential of shared ledger technology to resolve these concerns by tokenizing regulated financial instruments, thereby enabling settlement to take place around the clock. Furthermore, this investigation was conducted in a test environment and utilized simulated data to execute transactions in USD. The proof of concept (PoC) was to develop a financial market infrastructure (FMI) that could potentially resolve tokenised US Treasuries, IG bonds, central bank deposits, and commercial bank deposits in accordance with predetermined characteristics. In addition to multi-asset delivery, cross-network interoperability was evaluated to accomplish synchronized settlement by connecting the RSN FMI to multiple third-party networks.

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The results are summarized below:

A shared-ledger FMI that includes tokenized securities, central bank deposits, and commercial bank deposits, where each institution administers its own partition, could improve multi-asset and cross-network settlement. The network enabled a common settlement infrastructure that possessed 24/7, programmable, and precise settlement capabilities, thereby enabling financial institutions to optimize their collateral and liquidity positions. Simultaneously, the network mitigated obstacles such as infrastructure fragmentation and uncertainty during the settlement process.
The scalability and versatility of the RSN infrastructure for modern financial transactions were demonstrated by its ability to support precise settlement capabilities across various asset classes within a shared-ledger FMI. Through interoperability solutions, the RSN effectively established connections with other third-party networks, thereby facilitating synchronized settlement.
The legal workstream did not identify any issues that would impede the creation of RSN as envisioned in the PoC under current legal frameworks. However, additional analysis and engagement with regulators would be necessary before any definitive conclusions can be reached.

Industry Comments

Kelly Mathieson, chief business development officer, Digital Asset, says: “At the heart of its success was a meticulous design stage, which shaped the technology infrastructure to deliver seamless simultaneous settlement. Solving for configuration, functional challenges, API changes, test case development, and execution, provides a road map for other initiatives to consider and replicate.”

“The US RSN showcases how interconnected, synchronised applications can eliminate complexity and enhance operational efficiency, redefining standards for modern financial markets. It is not just a technological milestone, but a collaborative effort that sets the stage for a unified digital market infrastructure. To avoid narrow proof-of-concept silos, we’ve prioritised broad integration and scalability from the outset. By implementing true simultaneous settlement and leveraging real-time updates, the US RSN exemplifies how next-generation networks could operate. This innovative approach offers an opportunity to minimise settlement delays and reduce operational risks.”

FAQ

What is the purpose of the RSN PoC initiative?
The RSN (Regulated Settlement Network) PoC aims to create a unified framework for simultaneous, 24/7 settlement of tokenized financial assets such as US Treasuries, central bank deposits, commercial bank deposits, and investment-grade securities. This effort seeks to address inefficiencies, high costs, operational risks, and settlement delays in current systems.
Who were the key participants in this initiative?
The initiative involved prominent financial institutions and technology providers, including:

SIFMA Working Group Members: Citi, JP Morgan, Mastercard, Swift, TD Bank, US Bank, Visa, Wells Fargo, Zions Bancorp, and USDF.
Technology and Advisory Partners: Digital Asset, Swift, Deloitte & Touche LLP, and Sullivan & Cromwell LLP.
Supporting Institutions: NYIC (Federal Reserve Bank of New York), ISDA, Tassat Group, MITRE Corporation, BNY Mellon, DTCC, and Broadridge.

What were the primary challenges the RSN PoC aimed to solve?

Fragmented Infrastructure: Current settlement systems operate in silos, increasing complexity and inefficiency.
Operational Risks: The lack of integration elevates risks during transactions.
Transparency and Costs: Inefficiencies result in higher costs and reduced transparency.
Settlement Delays: Traditional systems operate on limited hours, causing prolonged settlement times.

How does the RSN PoC address these challenges?
The PoC utilized shared ledger technology to tokenize financial instruments and establish a 24/7 network for multi-asset, cross-network transactions. It also demonstrated interoperability between the RSN infrastructure and third-party networks, ensuring synchronized and precise settlement.
What were the results of the PoC?

Improved Settlement: The RSN PoC enabled seamless settlement for diverse asset classes, improving liquidity and reducing collateral needs.
Scalability and Interoperability: The shared-ledger FMI supported various asset types and connected with external networks to facilitate synchronized settlement.
Legal Feasibility: No immediate legal barriers were identified, though further regulatory engagement is required for full implementation.

What are the next steps for the RSN initiative?

Further testing and scaling of the infrastructure.
Continued collaboration with regulators to ensure compliance.
Exploring broader adoption of RSN within the financial industry.

Conclusion

The RSN PoC represents a groundbreaking approach to modernizing financial market infrastructure. The initiative showcases the potential for a unified, efficient, and transparent settlement system by enabling simultaneous settlement for tokenized assets and ensuring interoperability across networks. With its focus on scalability, collaboration, and regulatory compliance, the RSN lays a strong foundation for the future of global financial transactions. This innovation sets a new standard for operational efficiency and risk mitigation in modern financial markets.

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