The proof-of-concept of what has been dubbed the Regulated Settlement Network (RSN) showcased the potential of shared ledger technology to upgrade multi-asset and cross-network transaction settlement for domestic users of US dollars and regulated securities.
Led by SIFMA - the Securities Industry and Financial Markets Association - the working group included Citi, JP Morgan, Mastercard, Swift, TD Bank, US Bank, USDF (a membership-based association of insured depository institutions,) Wells Fargo, Visa, and Zions Bancorp.
Further, the core technology for the PoC was provided by Digital Asset, the network interlinking the prototype for the cross-network interoperability was provided by Swift, and legal services were provided by Sullivan & Cromwell LLP, while Deloitte & Touche LLP provided advisory services to SIFMA.
Alongside this, contributors from BNY, Broadridge, DTCC, The International Swaps and Derivatives Association (ISDA), Tassat Group, the MITRE Corporation, and the New York Innovation Center (NYIC) at the Federal Reserve Bank of New York were also involved in the project.
After the initial PoC in July 2023, the group went on to test how simultaneous and coordinated 24/7 settlement capabilities could be achieved for multi-asset and cross-network transactions involving tokenised central and commercial bank deposits, US Treasury securities, and other regulated assets.
Interoperability is required as at the moment, transfers of commercial bank deposits, wholesale central bank deposits, and US Treasuries and investment grade debt securities are settled on separate, siloed systems. This means that transaction processing is inefficient, operational risks are increased, costs are higher, transparency is reduced, and settlement times are slower.
The most recent study into the RSN PoC explored how shared ledger technology can address these issues with tokenisation of regulated financial instruments so that settlement can occur 24/7. In addition, this experiment was conducted in a test environment and leveraged simulated data to make transactions in USD.
The PoC focused on designing a financial market infrastructure (FMI) that could potentially settle tokenised US Treasuries, IG bonds, central bank deposits, and commercial bank deposits according to pre-determined characteristics. As well as multi-asset delivery, after connecting the RSN FMI to multiple third-party networks, cross-network interoperability was tested to achieve synchronised settlement.
The findings are summarised below:
- Multi-asset and cross-network settlement could be enhanced through a shared-ledger FMI that contains tokenised securities, central bank deposits, and commercial bank deposits where each institution operates its own partition. The network enabled a common settlement infrastructure that had 24/7, programmable, and precise settlement capabilities to allow financial institutions to optimise their collateral and liquidity positions. At the same time, the network alleviated challenges such as infrastructure fragmentation and uncertainty throughout the settlement process.
- The RSN infrastructure was able to support precise settlement capabilities across various asset classes within a shared-ledger FMI, demonstrating the scalability and versatility for modern financial transactions. The RSN successfully connected with other third-party networks through interoperability solutions enabling synchronised settlement.
- The legal workstream did not identify any issues that would prevent the creation of RSN as contemplated within the PoC under existing legal frameworks, although further analysis and engagement with regulators would be required before any final conclusions can be reached.
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."