Swiss OTC Blockchain Information about the Swiss OTC Blockchain and further development

Transcription

1 Swiss OTC Blockchain Information about the Swiss OTC Blockchain and further development Michele Forte, Head of Fintech, Consulting. Design. Agile Projects. Products. Innovation Hosting.

2 SWISS OTC CHAIN For people who believe in enterprises, not in institutions

3 OTC Markets have not fundamentally changed Buyer Seller (Buy) Orders Assets Capital (Sell) Emittent Central Aktienbuch End customers still have no direct access to the market itself and must use intermediaries

4 References The OTC process vision Regulatory compliance FINFRAG: Trade / transaction reporting requirements MIFID II: Identification of economic beneficiaries for all transactions Clearing and Settlement Trade clearing and settlement can take several months Counterparty risk for banks, costly capital requirements Trade Reconciliation Manual processes are error prone Back office costs OTC clearing as a first attempt to create a Swiss digital standard

5 References The OTC project goals - Create a decentralized, open system prototype for post-trade processing in the Swiss OTC market - The resulting system will allow for the participating banks to Fully comply with regulations Instantaneously clear and settle trades Remove the need for trade reconciliation (correctness by design) - If prototype is successful, prepare the ground for Trade execution as part of the system Roll-out to additional asset classes like OTC Derivatives and Structured Products OTC clearing as a first attempt to create a Swiss digital standard

6 References The OTC system overview The different partners will share a common infrastructure based on Blockchain

7 References The OTC challenges - Consortium Governance How to implement governance mechanisms on the Blockchain that are fair and adequate. How to make sure these mechanisms can be updated if regulation change requires it (remember: Smart contracts are immutable) How to add new members to the consortium. - Selective Privacy of Client Data How to comply with MIFID II (reporting of economic beneficiary on transaction level) It must guarantee that no party without proper permission can access client data. - Obfuscation of trade transactions between brokers Ensure that no data sneaking is possible on the (per default open) blockchain. Challenges are the motivation for us to find the right technology solutions

8 Blockchain The Case of Swiss OTC Blockchain Buyer (Buy) Orders Assets Capital Seller (Sell) Reporting and compliance pain - Regtech is getting traction - Regulatory and compliance - Unregulated OTC market will be regulated Project tries to ease: - for and s - Automate Share Register - Fully digitize shares no depository of shares - Reporting to CCP Issuer Share Register Disclosure Central Counterparty () Technology - Blockchain (Ethereum) - IPFS - Security Technologies A shared ledger removes or splits the cost of compliance between its participants

9 Blockchain What the Swiss OTC Blockchain does Buyer (Buy) Orders Assets Capital Seller (Sell) Reporting and compliance pain - Regtech is getting traction - Regulatory and compliance - Unregulated OTC market will be regulated Project tries to ease: - for and s - Automate Share Register - Fully digitize shares no depository of shares - Reporting to CCP Issuer Share Register Disclosure Central Counterparty () Technology - Blockchain (Ethereum) - IPFS - Security Technologies - REST-APIs and Web Blockchain removes necessity of transaction reporting to CCP and share issuer

10 Blockchain Intermediaries and Buyer (Buy) Emittent Share Register Ledger: Transactions, Share Register, Reverse- Transactions,, (Clearing) Seller (Sell) Central Counterparty () Swiss OTC Blockchain - Secure - Shared ledger but data is encrypted - Concentrates on the compliance on a shared ledger and shared system. - Shared processes, rules etc. - : Based on Smart Contracts - Using the system means being compliant. - Not a market (yet) - Instant clearing of a deal is work in progress. Business case successfully solved by usage of Blockchain

11 OTC OTC, ICO and derivatives The architecture of the Swiss OTC Blockchain is the basis for a fully decentralized market! KYC and decentral order book Remove central exchange institution Fully decentralized ledger OTC & ICO Derivatives KYC Services Post Trade Capturing for structured contracts Order book and market making (matching) on the chain Automated: Derivatives are represented by «SmartContracts». Transactions are executed directly on the Blockchain. No paperwork or administrative expenses. Peer-to-peer: The Blockchain takes over the function of the market, brings together supply and demand. Distributed: The state of the derivative is always visible to everyone, or: depending on their role or location., requirements and reports to a "Central Counterparty" are automatically carried out, new requirements are propagated through updates. Operation of the Blockchain is highly flexible - e.g. The operating costs can be covered by "mining"; Switching cost: 0. New market areas due to significantly lower costs

12 OTC Derivatives case Subscriber Emittent Partner Ledger: Transactions, Structured products, Reverse- Transactions,, (Clearing) Requester Central Counterparty () Primary market : distribution - The same architecture can be reused. - Multiple smart contracts manage the life cycle of the different derivative products : capital protection, yield enhancement, participation and leverage - Payments can be done either through integration with SIX CIC or by issuing a token bound 1- to-1 to Swiss francs redeemed on an internal exchange. - Paperless process. The existing OTC architecture can be reused to lower cost and improve transparency

13 OTC Smart contracts A pseudo-code of a Smart Contract: If the value of SwissRe share at 31 March 2017 will be >= 90 CHF than you pay me the 3% on my investment of 1000 CHF do it today Else you give me back the 1000 CHF without any interest. Transaction Sending value to the contract Events Sending information to contract Smart Contract Transaction Sending value from the contract Events Sending information from contract Value State Distributed Ledger The lifecycle of structured products will be completely automatized. 10/05/

14 OTC 100 % disruptive architecture of the Swiss OTC Blockchain The Shared Ledger Vision is, where participants collaborate to maintain a shared record, assured to be consistent between them, consuming the services of existing and new service providers and market infrastructure providers on an open and competitive basis. Swiss OTC Blockchain is designed to be a public shared ledger! Source: Corda non-technical white paper

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