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Equity MarketplaceA Blockchain Implementation
About us
I am Tullio Menga, ICT architect and developer.
I have been working in Capital Market area during last twenty years, specifically in the field of high
performance infrastructures.
I am currently collaborating with ATS, Milano (IT), having its core business in Capital Market.
ATS is Innovation Partner of UCL.
We are currently exploring use cases of blockchain technology in OTC derivatives, non-listed equities
and several other areas.
Blockchain in brief
IMMUTABLEDISTRIBUTED
TRANSACTION LEDGER
• immutable, non-tamperabletransactions
• cryptographic encryption
• consensus
SECURITY
• transactions are etched to the ledger as they are processed
• no need for end-of-day batch processes
NEAR-REAL-TIME
• decentralisation
• data replication on nodes
• no single point of failure
REDUDANCY
• smart contracts to define complex business logics
• complex transactions execute atomically
PROCESS
OPTIMIZATION
Blockchain in Capital Market
t+0
t+x
t+y
t+0
TODAYSeveral back-offices use different technologies and interact at
different times, leading to very complex, slow and non-atomic
transactions, possible human errors and slow reaction to failures.
FUTUREDistributed ledgers handle complex transactions atomically, in near-
real-time, and share updates at transaction time, leading to safer and
faster processes, less human errors and quicker reaction to failures.
• Intracompany settlement
• Loan settlement
• Trade settlement
• Trading
• Collateral management
• Derivatives clearing
• Derivatives agreements
• Cross-border payments
FINANCIAL INSTITUTIONS
• Trade reporting
• Compliance reporting
• Risk visualisation
• Transparency regulation
• Anti-money-laundring
REGULATORS
OTC Derivative Trading NON-listed EQUITY Trading
Market Engine (book, matching) X X
Post-trade settlement X X
Contract issuing (master agreement) X
Contract maturity settlement X
Shares management X X
Collateral management X X
Instrument pricing X
Margination management X
Trade-offs
• Requires more features and
more complex
• More problematic normative
aspects (may involve CCP
obligations)
• Requires less features
• Easier normative aspects
(no CCP obligations)
OTC Derivatives and Equities
OTC Derivative Trading NON-listed EQUITY Trading
Market Engine (book, matching) X X
Post-trade settlement X X
Contract issuing (master agreement) X
Contract maturity settlement X
Shares management X X
Collateral management X X
Instrument pricing X
Margination management X
focus of this
presentation
Why a blockchain?
IMMUTABLE TRANSACTION
LEDGER
• OwnershipProvides a reliable register of asset property exchanges
• ComplianceProvides access to auditabledata, verified and hard to tamper
• No Central CounterpartyDistributed ledger eliminatesneed of third-parties such as a CCP, and risk from single pointof failure
MANY PROCESSES
IMPLEMENTED ON SAME
ASSETS
• 1 transaction – many assetsTransactions involving many assets, such as ollaterals can be implemented ‘atomically’.
• 1 asset – many transactionsDifferent transactions involvingthe same asset, such as trading equity shares and using themfor collateral allocation, can be implemented ‘atomically’.
TECHNICAL BENEFITS
• Several participants performbetterConsensus is more reliablewhen the number of particdipants increase, withoutsignificantly loosingperformance.
• Near-real-time transactionsCan make settlement faster, reducing the need of separate batch accounting processes.
LEGAL PROCESS TECHNICAL
Equity Trading Processes
asset:
currency
transactions:
amount transfers
actor:
financial institutions
asset:
equity shares
transactions:
ownership exchanges
actor:
custodians
asset:
collaterals
transactions:
collateral allocations
actor:
central counterparties
CASH
LEDGER
SECURITY
LEDGER
COLLATERAL
LEDGER
blockchain pegging
Equity Trading Ledger
assets:
currency and equity shares
transactions:
trades and collateral allocations
smart contracts:
custodian and central counterparty business logics
actors:
financial institutions only
EQUITY TRADING
LEDGER
OTC Derivatives and EquitiesPrivate – Permissioned Public – Permissionless
Participants Controlled, trusted. Free, trustless.
Potential market liquidity Controlled by participants. All the circulating crypto-currency.
Performance (current) Higher (1 block <3s). Low (1 block in minutes).
SecuritySame as any common private
network.
Relies on anonymous accounts,
must be analysed in details.
Ledger permissioningEmbedded, rules defined by
stakeholders.
Harder to control (participants can
be anonymous).
Regulator / normative implications
Rules can be defined to meet
regulatory compliance.
Regulatory institutions can be
participants themselves
Harder to meet regulator
compliance requirements (it is a
natively cross-border platform).
Our choice
Private – Permissioned Public – Permissionless
Participants Controlled, trusted. Free, trustless.
Potential market liquidity Controlled by participants. All the circulating crypto-currency.
Performance (current) Higher (1 block <3s). Low (1 block in minutes).
SecuritySame as any common private
network.
Relies on anonymous accounts,
must be analysed in details.
Ledger permissioningEmbedded, rules defined by
stakeholders.
Harder to control (participants can
be anonymous).
Regulator / normative implications
Rules can be defined to meet
regulatory compliance.
Regulatory institutions can be
participants themselves
Harder to meet regulator
compliance requirements (it is a
natively cross-border platform).
Trade-offs
• greater performance
• finer permissioning control
• more normative-oriented
(CSDs plays a role)
• more normative oriented
• consensus basis must be built
• greater potential penetration
• greater consensus basis
• slow performance
• hardly controlled permissioning
• harder to meet compliance
rules (no CSDs)
• public code, easier hacker
attacks
Ⓒ2014 ATS
Today
Our Model – who does what• are the user participants of
the platform
• do trading transactions
• do collateral allocationtransactions
• manage updating of balances on real-world bankaccounts
Financial Institutions
Bank Accounts
• are the owner participantsof the platform
• are responsible for normative compliance
• read security ownershipexchanges
• manage updating of theirsecurity accounts
CSD(s)
Security Accounts
• Interested in information from the ledger
• In practice, may receive red information from participants
• ideally, can be participantswith read-only access to the ledger
Regulator
• implement the market engine
• business logic of CSDs, ‘atomically’ to tradingtransactions
• business logic of CCPs, ‘atomically’ to collateralallocation transactions
Smart Contracts
Participation model – the actors
Associated
Institutions
Participant
InstitutionsCountry
CSD
Regulators
Professional
Traders
APIbroker
broker
node
node
node
Retail
Users
Participation model – the actors
Associated
Institutions
Participant
InstitutionsCountry
CSD
Regulators
Professional
Traders
• Trader pays transaction
fees
• Participant forwards part of
the fee to the platform
Retail
Users
• Associated pays own
transaction fees to the
Platform
• CSD receives part of
transaction fees collected
by the Platform
• Participant pays
transaction fees (own or
Trader’s) to the Platform
• Platform forwards part of
collected transaction fees
to each Participant
Ⓒ2014 ATS
Tomorrow
Single Country
Country A
Multi Country
Country A
Country B
Multi Currency
Country A
Country B
Country C
Currency 1
Currency 2
Ⓒ2014 ATS
Road map
Road map
• Developed
• Performance-tested (>100 transactions/s on 10 nodes)
MARKET ENGINE
• Will be released on October 1st 2016
WHITE PAPER
• Will be released on November 1st 2016
• Using Intelledger®, part of Hyperledger project of Linux Foudation
FULL IMPLEMENTATION
• Currently building network
• Involving Banks, Brokers, Institutions
PARTICIPANT INSTITUTIONS
