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March 27, 2018

ECB published a report on the second phase of Project Stella, which is a joint research project of ECB and BOJ. The report describes the key findings of the joint study (of ECB and BOJ) on the application of distributed ledger technology (DLT) in securities settlement systems. The objective of Stella phase 2 is to explore how the settlement of two linked obligations, such as the delivery of securities against the payment of cash, could be conceptually designed and operated in an environment based on DLT. Legal aspects have not been the object of the study.

The report examines the ways in which delivery versus payment (DvP) can be conceptually designed and technically achieved in a DLT environment. The report draws on the existing DvP models and innovative solutions that are being discussed for distributed ledgers. The analysis is based on a basic, stylized scenario of two counterparties exchanging securities against cash. As was the case in Stella phase 1, this work does not attempt to replicate the existing payment and securities settlement systems and is not geared toward replacing the existing central bank services with DLT-based solutions.

The report presents key results of the second phase of the project and outlines the categorization of DvP solutions in a DLT environment, based on whether assets are on the same or separate ledger. It then describes generic process flows for each DvP approach and assesses their main characteristics from a range of perspectives. The key findings of the analysis are as follows:

  • DvP can run in a DLT environment subject to the specificities of different DLT platforms
  • DLT offers a new approach for achieving DvP between ledgers, which does not require any connection between ledgers
  • Depending on their concrete design, cross-ledger DvP arrangements on DLT may entail complexity and could give rise to additional challenges, which would need to be addressed

 

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Keywords: Asia Pacific, Europe, Japan, PMI, DLT, Delivery versus Payment, Fintech, BOJ, ECB

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