Blockchain startup Paxos is set to launch a blockchain pilot for clearance and settlements in the U.S. stock market. The project provides an alternative to the process offered by the Depository Trust and Clearing Corp (DTCC).
If successful, the Paxos system will be one of the first blockchain implementations deployed in the U.S. stock market arena. The project could also provide backing for one of the proposed adoption use-cases for decentralized technology in the financial markets.
Paxos Blockchain to Speed up Settlement Process
According to the Wall Street Journal (WSJ), Paxos has obtained approval from the U.S. Securities and Exchange Commission (SEC) to deploy its blockchain project for settlements of trades in the U.S. stock market. The initial approval covers a limited utilization of the decentralized technology (DLT) framework to process stock trades for AT&T and General Electric.
The process sees Paxos as a trusted intermediary between participating banks. The blockchain startup will use the DLT framework to digitize the cash deposits and securities involved in the prospective stock trade.
Paxos handles the actual settlement process with smart contracting protocols transferring the cash and securities to the appropriate accounts once the settlement date arrives. All the while, participants can monitor the trade via the blockchain platform.
Paxos will be hoping its new DLT system can shorten the clearing and settlement process for trading stocks. Such an outcome could lead to a broader adaptation of the system within and outside the U.S. stock market.
Already, similar plans exist in countries like Australia and Singapore. Stakeholders say blockchain adoption in the stock market could provide useful benefits to the entire financial ecosystem.
Increasing the speed of the settlement process could have significant cost reduction benefits as capital no longer needs to be tied up for days on end while waiting for approval for a stock trade. However, for now, Paxos’ mandate from the SEC only covers about 140 stocks with a cap of 1% of the average daily trading volume.
DTCC Welcomes Competition
A successful pilot testing of the Paxos blockchain-based stock trading settlement project could mean competition for the DTCC which has a monopoly on the clearing and settling of the U.S. equities market. Commenting on the project, Michael McClain of the DTCC says the organization welcomes the prospects of healthy competition adding that the DTCC is constantly striving to improve its operations.
For Paxos CEO Charles Cascarilla, the project could provide cutting edge solutions to the current pain points in stock trading remarking:
“There has been so much innovation in the way trading happens over the past 20 years, with people trading in microseconds, but there hasn’t really been innovation in clearing or settlement.”
The Paxos system aims to cut down the clearing and settlement period for stock trading from two days to a single business day.
Largescale Blockchain Utilization on the Rise
The Paxos news comes as blockchain adoption efforts continue to increase across the globe. China has recently caused a stir with a flurry of positive blockchain sentiments as even President Xi Jinping encouraged greater DLT utilization.
However, as reported by Blockonomi, there are concerns that China’s blockchain interest might not include the promotion of decentralization. Some critics argue that authorities in Beijing will only use the technology to further their control of citizens.
Lawmakers and entrepreneurs in the U.S. have urged a similar course of action for the country so as not get left behind by China in the emerging digital economy.