Paxos, State Street, and Credit Suisse Trial Permissioned Blockchain for Same-Day Trade Settlement

Paxos launched a new blockchain-based pilot in partnership with State Street that boasts same-day settlement times (also known as “T+0”) for stock trading. Credit Suisse also participated in the pilot.

Called the Paxos Settlement Service, the CEO and co-founder of Paxos Charles Cascarilla said that the private, permissioned blockchain solution “will revolutionize core market operations as our modern infrastructure improves efficiency, reduces risk, increases innovation and provides transparency.”

Using Paxos’ settlement service, the pilot involved simulating a trade between Credit Suisse and State Street.

“Our team is incredibly pleased to have collaborated with Paxos, Credit Suisse as well as State Street’s Alpha team on this exciting industry initiative to facilitate seamless same day (T+0) settlement,” said head of State Street Digital Nadine Chakar.

“It also further validates that the use of blockchain technology will help automate the life cycle of a trade, reduce costs and could eliminate the need for the traditional reconciliation processes used in today’s settlement environment,” added Chakar.

Paxos takes aim at settlement times

In finance, settlement times for transactions are measured in “T+” terms which are understood as the date of the trade plus however many days it takes to settle the trade. In the 1990s, for example, financial markets ran on a “T+3” settlement cycle after the U.S. Securities and Exchange Commission (SEC) reduced settlement times.

This metric is often put in plain view during market stress and volatility.

With large swings in the price of specific stocks, something markets saw during the meme stock frenzy, lengthy settlement times can mean dramatic changes in the price investors ultimately pay for a stock.

Today, the standard is a “T+2” settlement time, but the objective is to reduce this even further after Robinhood ground to a halt to accommodate sluggish trade times in 2021.  “The existing two-day period to settle trades exposes investors and the industry to unnecessary risk and is ripe for change,” Robinhood’s CEO Vladimir Tenev said in a blog post in February 2021.

Ultimately, investors face far less variance in the price quoted and the price paid if the settlement times are shorter.

This isn’t the first time Credit Suisse has turned to blockchain technology to settle stock trades. In April 2021, the bank tested a similar service with Paxos, resulting in a trade reportedly settling in just one and half hours.

Elsewhere, Bank of America and Wedbush Securities also tapped Paxos’ blockchain offering to boost trade speeds.

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