South Africa's central securities depository (CSD), Strate, and Russia's National Settlement Depository (NSD) have signed a letter of intent to partner on the use of blockchain technology.
The intention is to forge a partnership between the two depositories to develop solutions utilising distributed ledger technology (DLT), with the first use case focused on proxy voting.
They note blockchain technology will "rapidly grow" and create a new "paradigm shift" in the current economy. Moreover, the parties believe it will transform markets such as security transactions and financial infrastructure.
The partnership will bolster a mutual collaboration for blockchain-based post-trade settlement. The groups aim to eventually establish DLT standards, infrastructure benefits, and potential savings in business costs.
Strate is licensed to be an independent provider of post-trade products and services for the financial markets. It provides electronic settlement of equities and bonds transactions concluded on the Johannesburg Stock Exchange.
The depositories believe that through industry-wide collaboration, they will be better positioned to face the changes presented by DLT technology and develop innovative solutions for the benefit of the financial market.
DLT, which has emerged as a relatively new and rapidly growing innovative technology, is set to revolutionise the financial markets and fundamentally create a paradigm shift, the organisations say. Given that there is the potential for financial markets to create a distributed ledger that settles securities transactions, financial market infrastructures need to embrace the technology and identify opportunities that will add value to their current clients, they add.
This relationship allows both parties to explore opportunities for mutual cooperation in the post-trade settlement arena, including information sharing regarding standards, regulations and DLT technologies; the exploration of solutions that are of mutual benefit to both depositories; as well as potential cost savings through the sharing of technology and development costs.
A number of other central securities depositories have expressed interest in joining the partnership, with Strate and NSD welcoming these discussions.
"It is an important time for CSDs to be working together to define the future landscape in the DLT environment," says Monica Singer, CEO of Strate.
"Strate looks forward to developing this long-standing and valuable relationship with NSD to develop solutions for emerging market CSDs."
Eddie Astanin, chairman of the NSD executive board, comments: "We believe that the securities settlement and custody industry is one of the promising sectors where we can use new technologies.
"I think that post-trading may become the starting point of transition of the distributed ledger technology and blockchain from theory to practice. In 2015, we began research and initiated new developments; since that time we have developed valuable expertise in this sphere, and now we are eager to share it with our colleagues. "
In April, NSD was one of the first financial organisations in the world to announce the development of a blockchain-based prototype of e-proxy voting.
Astanin adds that "fast development of technologies and the huge number of start-ups that enter the market every month is a challenge of our time for major companies. We have to be one step ahead of everyone else and to use the opportunities we have now.
"Only the united efforts of the largest players in our industry will enable them to respond to new challenges and integrate new technologies."
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