Two Japanese companies, Mizuho Bank and Fujitsu, have teamed up to test the blockchain technology in order to speed up the processing of cross-border securities transactions. As for now, it takes three days on average while blockchain can shorten it to one-day settlement.
According to Mizuho, the current complex approach to transaction settlement includes much time spent checking the settlement instructions and transaction content for inconsistencies. Besides the risk of counterparty bankruptcy is involved.
Both companies strived to combine their experience to finally come up with the most reliable and convenient financial system that minimizes risks associated with cross-border securities transactions, such as price fluctuations.
The official press release says: “The goal was to enable low-cost, low-risk cross-border securities transactions by building a system utilizing blockchain technology that can almost instantly share matched trade information in the post-trade process as data that cannot be tampered with, but without building a large-scale settlement system from scratch. This would thereby shorten the time from trade execution to final settlement from the previous three days to the same day”.
For the trial the partners built a low-cost, low-risk system, using blockchain’s Open Assets Protocol, in Fujitsu’s cloud environment. The testing period took three months – from December 2015 till February 2016.
Now, when the test is completed, the first results can be announced. Combined efforts included Mizuho Bank being responsible for providing its expertise with the securities settlement process, Fujitsu Limited fulfilling the creation, evaluation, and testing of the trial system, and Fujitsu Laboratories applying the experimental blockchain technology.
As a result, Mizuho Bank and Fujitsu managed to develop a blockchain-forming system capable of recording the information from a confirmation (for instance, securities name, quantity of securities, currency code and so on) as one linked block.
All blocks were linked as blockchain so that no one could copy the information and misuse it. Finally the companies managed to achieve their aim – time of transaction settlement was shortened due to the possibility to share the information between multiple companies. Thus Fujitsu and Mizuho bank confirmed the ability of blockchain to reduce the time needed for settlement of international securities transactions from three days to one.
The companies are planning to practically apply the new system in March 2016.
The attention of bitcoin society has recently been riveted to the blockchain as a technology able to revolutionize the financial services.
However, Chris Skinner, an author, expert and speaker on banking, finance and fintech, explains that supposition about blockchain to replace 50-year-old, bank-owned network Swift is rather provocative.
He sticks to the opinion that blockchain does have potential to fundamentally reinvent the banking system. However, it will take long time for bankers to come to this.
He says: “Bitcoin can replace Swift for financial transaction processing. I don’t say it will. The fact that Swift is highly inclusive of Ripple, Colored Coins, the bitcoin community and more in its internal and external discussions shows that Swift is just as keen as I to highlight the importance of these developments to its financial community.”