CSDs band together to explore tokenisation

A meeting of market infrastructures, custodians and CSDs in Paris has endorsed further exploration into crypto assets and tokenisation leading up to Sibos.

By Jonathan Watkins

Securities services providers led by Euroclear, SIX and Russia’s National Settlement Depository  (NSD), have met under the auspices of the International Securities Services Association (ISSA) to discuss plans to further investigate the concept of tokenisation.

The joining of competitors in the space to discuss the issue signals just how important the topic of digital assets has become to incumbent market players, as they take all steps possible to prepare for their role in a new, or evolving, environment.

“Typically, this sort of thing always grows with some kind of central initiative, but this came around very organically around two years ago, and has grown under ISSA,” explained Glen Fernandes, group strategy, Euroclear and also co-chair of the ISSA DLT Working Group.

“We knew it was important to look at as a trend, so we asked ourselves ‘shouldn’t we put our heads together and see what the future of these crypto assets are?’.”

The introduction of blockchain technology and digital assets into the capital markets will reform the way products are held and mobilised, forcing incumbent players to assess future business models.

While cryptocurrencies remain on the fringe of institutional investment, securities services providers are far more bullish on the introduction of tokenised assets into the system. This includes the tokenisation of both new and existing investment opportunities using DLT.

The group is set to release a paper on distributed ledger technology, crypto assets and tokenisaton in line with Sibos, which opens in London on  September 2019. The paper will explore taxonomy, issuance, how you can achieve DVP settlement, safekeeping, corporate actions and the promotion of standardisation, interoperability and automation without stifling innovation.

“The fact that people came from across the world to attend this workshop shows that people are interested and willing to spend their time on it ,” added Fernandes. “You are learning on-the-go what are the potential ways to do certain things. You might see that ‘I can play a role in that’. Everyone is in this learning mode, so people are more open. Nobody is discussing confidential information in these forums, but in the general sense of discussing the possibilities, they are much more open and are also challenging solutions.”

ISSA released a report on infrastructure for crypto-assets around a year ago, where it attempted to establish the roles of market infrastructures in the digital asset world. It concluded that market infrastructures and financial institutions, operating within a framework of law and regulation, are essential to the growth and success of this new asset class. “Issuers and exchanges, and the other members of the crypto-asset eco-system, ought to welcome this prospect rather than deplore it,” ISSA concluded.

Urs Sauer, director, strategic business development SIX Securities and Exchanges and the co-chair of the working group, said: “From a working group of four CSD’s back in 2016 we have grown to a large ISSA industry group of 33 CSD’s, global custodians and IT providers that span the world. 

“The regular face-to-face meetings enable us to provide leadership to our industry dealing with this new technology that holds great promise and many challenges.”