The London Stock Exchange Group (LSEG) is planning to build a distributed ledger-based proof of concept for equities settlement, which it expects to have ready for testing in the Financial Conduct Authority’s (FCA’s) Sandbox later this year.
“We are in the process now [of] preparing to kick-start development,” says Dotun Rominiyi, blockchain architect for emerging technologies at the London Stock Exchange Group (LSEG). “Our expectation is that by the end of this year, we will have a PoC in place, and that [we will be] ready to essentially take it into the sandbox and run the live demonstration tests with the FCA and our collaborative partners.”
The LSEG began its participation in the sandbox last year in collaboration with Nivaura, a regulated fintech company.
An example of the kind of problem the project seeks to tackle is the settlement of equities on a blockchain. Tokenized assets can move on a blockchain without any intermediary, but according to the Central Securities Depositories Regulation (CSDR), securities must be settled in a CSD.
“We can solve that by essentially bringing the intermediary on to the blockchain. The process is still fully automated, but the authorization for that automated activity is provided by this authorized entity,” he says.
The FCA’s sandbox allows firms to test products and services in a controlled environment. The FCA’s sandbox takes in series of entrants, called cohorts. LSEG moved up from cohort 5 to 6 this year. Besides Nivaura, the exchange group is collaborating with other market participants in the sandbox, including two custodians.
Deutsche Boerse, another exchange that is exploring DLT technology, said last month it could become a network operator, guarding the integrity of decentralized networks and managing rulebooks to help blockchain participants interact with each other.
When asked if the LSEG could pursue a similar role, Rominiyi says it is possible.
“Assuming we are going to be pursuing technologies and laying the foundation of infrastructure that is going to be DLT-based, it is going to require some form of governing structures to provide validator nodes and to manage and operate the network,” he says. “Then we absolutely see that the LSEG will likely have a role in that space, given that ultimately we, as an entity, are a financial markets infrastructure provider. That is very much our identity as a business.”