Blockchain systems for trade clearing
Abstract
Purpose
This paper aims to apply blockchains (BCs) for trade clearing and settlement in a realistic clearinghouse. The purpose is to demonstrate the feasibility and scalability of this approach.
Design/methodology/approach
The study uses account BCs and trading BCs as building blocks for trade clearing and settlement. Careful design is made to ensure that this approach is feasible and scalable.
Findings
A design has been proposed that can process hundreds of thousands of trades for a clearinghouse and it addresses performance, privacy and scalability of realistic trade clearing and settlement. The design has been implemented and experimented in a clearinghouse for over two months and processes over 3B real transactions from an exchange. The first month was to experiment with the system with historical data, the second month was to experiment with real-time data during market trading hours. The system performed as designed and intended.
Research limitations/implications
This is the first large research paper that applied BCs for clearing in the world. The authors applied the system to a clearinghouse and processed over 3 billion transactions, equivalent to 13 years of London Stock Exchange transaction volume, demonstrating that BCs can handle a large number of transactions.
Practical implications
The design can be duplicated to many clearinghouses in the world, and this also paves the way BCs can be used in large financial institutions.
Social implications
An implication is that other trading firms, clearinghouses and banks can apply the same technology for trade clearing, ushering the way BCs can be used in institutions. As clearing is a core function in business transactions, this has significant implications. The design can be discussed and improved in various communities.
Originality/value
As this is the first application of BCs to large clearinghouses that uses unique BC designs. This has significant value. Many studies have been performed but few have been reported in the scientific community. The system has been implemented, experimented and demonstrated in public for months.
Keywords
Acknowledgements
More than 20 people participated in this project from Arizona State University, Beihang University, GCH, Minsheng Bank, Letv, Tiande Tech and Huazhong Science and Technology University. Numerous hours have been spent on studying settlement and clearing processes at GCH. Their dedication to this project is greatly appreciated. This project is partially supported by the Chinese 1,000-Talent Program, State Key Laboratory Fund at Beihang University, China NFS fund and China Mobile via Ministry of Education Fund.
Citation
Tsai, W.-T., Luo, Y., Deng, E., Zhao, J., Ding, X., Li, J. and Yuan, B. (2020), "Blockchain systems for trade clearing", Journal of Risk Finance, Vol. 21 No. 5, pp. 469-492. https://doi.org/10.1108/JRF-02-2017-0022
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited