SETL Initiative has announced a new blockchain-based settlement infrastructure allowing market participants to move cash and assets directly between each other, facilitating the immediate and final settlement of market transactions.
The SETL system maintains a permissioned distributed ledger of ownership and transaction records, simplifying the process of matching, settlement, custody, registration and transaction reporting.
The initiative is led by Peter Randall, the former CEO and founder of pan-European equities trading venue Chi-X, and Anthony Culligan, an experienced hedge fund investor and CEO and founder of Roolo, a peer-to-peer bitcoin trading site committed to bringing bitcoin and blockchain technology into mainstream use in the City of London.
The system has been designed from the ground up to meet the needs of the finance industry and eliminate some of the concerns raised about the use of blockchain technology for financial markets. These include anonymity, typical for ‘permissionless’ blockchains such as the bitcoin blockchain, which would present challenges to AML / KYC obligations of financial institutions, and the limited capacity and speed of current blockchains, not designed to handle the required volume of financial transactions.
Permissioning Drives Speed
With SETL, users will deploy public/private key technology to assert transactions; however, where the BTC blockchain is limited to only seven transactions per second globally, the SETL infrastructure has demonstrated speeds of up to 5,000 transactions per second in tests and is expected to reach speeds of 100,000 transactions per second in an enterprise environment.
Such speeds are achievable, according to SETL, because the platform will operate on a ‘permissioned’ basis rather than the ‘permissionless’ environment bitcoin operates in. The SETL system will require that each public key used is certified by one of a number of entities that will undertake due diligence and will tie each key back to an LEI. This will ensure that regulators and other parties that have a legitimate interest will be able to identify the underlying users.
"With SETL, we aim to do to the post-trade environment what we did to exchange trading with Chi-X," Randall says. "Clearing and settlement processes are fragmented, cumbersome, costly and in need of technological innovation and simplification. We are currently in discussion with a number of first tier institutions who are looking to commercialise blockchain technology. Our aim is to be platform, exchange, currency and asset agnostic. When you have agreed a transaction, SETL will be the way to simultaneously move the consideration and the asset as well as provide a ‘golden record’ of the transaction."
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