Bank of America to Speed Up Stock Trade Settlement Using Paxos Blockchain Network
Crypto firm Paxos has welcomed Bank Of America to its blockchain-based network for settling US equities.
European banking giant Credit Suisse and Nomura Holdings Inc’s Instinet already use the network known as Paxos Settlement Service.
Improving Return-on-Assets for BoA
Speaking on the new development, the Bank of America’s head of financing and clearing, Kevin McCarthy, said joining the Paxos network would help improve the return-on-assets in the business, which he said has been a challenge for the bank.
Paxos Settlement Service is an alternative settlement platform to existing market infrastructure. It was launched in 2020 after receiving a no-action relief from the US Securities and Exchange Commission (SEC) in October 2019. Paxos has also applied for a clearing license with the SEC.
The CEO of Paxos, Chad Cascarilla, said his platform could threaten the Depository Trust & Clearing Corp. (DTCC), which currently dominates equity settlement. The DTCC offers a “T+2” settlement process via legacy software. The DTCC settlement takes up to two days and only offers same-day settlement for trades are recorded on or before 11 a.m.
This is unlike Paxos that settles stock trades within minutes using the blockchain. Paxos runs a permissioned version of the Ethereum blockchain.
Using Blockchain In The Stock Market
In recent times, financial firms worldwide have begun to explore how blockchain can help address inefficiencies in the financial markets. Even as the total value of stocks traded globally is pegged to be around $77.5 trillion, the complexity in stock-related transactions persists. The stock market still has problems regarding the time it takes for transactions to be approved and the operational costs.
NASDAQ is one stock exchange that has been a front-runner when it comes to adopting blockchain. The exchange already uses blockchain technology to issue and manage private securities. Most of the other exchanges are still exploring prototypes and looking into the opportunities in blockchain technology.
Banks like JP Morgan Chase have also leveraged blockchain technology to develop specialized payments systems and offer niche banking products. Since last year, JPMorgan has used the blockchain to execute intraday repurchase agreements totaling billions of dollars.