Blockchain Short Story 013: Status-Quo Securities Settlement

In the status-quo securities settlement landscape, roughly, we have 4 levels in the hierarchy:

1. Investors – holders of the securities
2. depot banks (aka custodians) – managing investors‘ depots, maintaining accounts at central securities depositories and global custodians
3. central securities depositories – the national source of truth for securities
4. global custodians – connected to different central securities depositories across the world. Directly, via local subsidiaries, or local custodians.

Now when we look at transferring securities between two investors, typicially the following constellations arise:

I. Internal transfer within a depot bank between two depots. This is an easy one, since everything is happening within a single bookkeeping system.

II. Transfer between two investors having their depots at two different depot banks that are connected via the national central securities depository (CSD). Still efficient, since only one additional intermediary is involved. Requires that investor‘s depot banks each have an account at the CSD.

III. Like two, but at least one of the depot banks is not connected to the central securities depositories and needs to involve a global custodian. This is a typical cross-border case, which is the most costly and painful one.

Using blockchain, we can flatten the hierarchy and improve the settlement times, reduce reconciliation processes and get rid of manual conflict resolutions.