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T
here is a broad con-
sensus amongst the
post-trade industry that
blockchain technolo-
gy will revolutionise
the custody and clearing world and
could radically change how assets are
maintained and stored by custodians
and CSDs.
The co-founder of Ethereum, for
example, does not see the need for
central securities depositories (CSDs)
to exist in their current format in a
financial system based on distrib-
uted ledger technology (DLT). A
decentralised DLT system could, for
example, remove the need for a mar-
ket infrastructure provider to hold a
security or token in its own physical
or electronic vault, while also poten-
tially allowing real-time settlement.
While the full disintermediation
of market infrastructures has been
played down in recent years as start-
up FinTechs look to partner with
incumbents, there remains some de-
bate about the future roles of certain
players.
“A CSD is a conceptual construct
and has a physical manifestation
because that’s what we know how to
build,” said Joseph Lubin, founder of
ConsenSys and widely known as one
of the founders of Ethereum. “It can
continue to exist as a conceptual or
logical construct, but it can take on a
decentralised implementation. Global
financial institutions can get togeth-
“A CSD is a conceptual construct and has
a physical manifestation because that’s
what we know how to build.”
JOSEPH LUBIN, CONSENSYS
16
Securities@Sibos
January 2019
er, define a protocol and build that
system, but there doesn’t need to be
a central physical clearing house or
implementation of a central database;
it can be realised as a series of nodes
on a decentralised network.”
We exist for a reason
Recognising the threat of block-
chain to their current services, CSDs
across the world have been work-
ing together and with regulators to
develop blockchain technology in the
post-trade sector and cement their
future role.
Some believe the involvement of
CSDs in a governance and operation-
al role could help increase the trust
of investors and raise the quality of
the ecosystem infrastructure un-
derpinning these new asset classes.
CSDs could become a ‘custodian of
the code’ ultimately playing a similar
role in ensuring safety and oversight
within the system.
Pushing back at Lubin’s sugges-
tion, Walter Verbeke, global head of
business model and innovation at
Euroclear SA/NV, said that ultimately
the market looks to CSDs for safety
and efficiency – something investors
need to feel comfortable, even in a
DLT world.
“As a CSD we are not a service
company, we were created by the
market,” said Verbeke. “A capital
market has inherent risks: counter-
party risk, liquidity risk, credit risk,
settlement, legal risk, there are so
many risks, but they are not inherent
to securities as compared to another
asset class; they are not inherent to a
market infrastructure, be it a trading
venue, clearing venue or settlement
venue, they are inherent to the cap-
ital markets. Capital markets have
created CSDs to mitigate some of
those risks…In a distributed world