Introducing Paxos Settlement Service — Changing How U.S. Securities are Settled
By: Charles Cascarilla
Tags: Us Equities, Settlement, Blockchain, Securities

Today I’m excited to announce that we’ve received No-Action relief from the SEC Staff to introduce the Paxos Settlement Service. Paxos Settlement Service is a private blockchain platform that makes true delivery-versus-payment settlement possible for two parties trading U.S. equities. In simpler terms, our new platform makes it faster and more cost-effective to settle equity trades.

Paxos Settlement Service is making two big “firsts” possible once live: This will be the first time in nearly 50 years that street-side listed U.S. equity trades will settle outside the legacy system. It will also be the first time blockchain technology is applied to transaction processing for public U.S. equity trades. These are very important firsts that begin to lay the foundation for a more modern, innovative and open financial market infrastructure.

That kind of big transformation is a journey and is more necessary than ever. One analysis showed that while front office costs have been cut 15% since the crisis at global investment banks, back-office costs are nearly the same. Back-office operations of the world’s biggest financial institutions are complex, expensive and need to be modernized. In an industry that measures trade execution speeds in microseconds (millionths of a second!), most investors don’t receive their cash or stocks until two days later–post office speed. We believe there is room for innovation and improvement by introducing blockchain-based solutions and Paxos Settlement Service will bring settlement into the 21st century.

Following this No-Action relief, we will start settlement soon for our initial participants, Credit Suisse and Société Générale, who will be the first early adopters of this innovative technology. They are electing to build the future of settlement with Paxos in an extremely low-risk environment that has the potential to deliver big benefits: Paxos Settlement Service will lower settlement fees and give participants access to capital otherwise trapped in the legacy settlement system.

The potential of modernizing our financial infrastructure cannot be overstated. We’re starting with the U.S. listed equities market, but Paxos Settlement Service is easily scalable to more asset classes, transaction types, client groups and geographies. Equities businesses on the Street are under pressure to deliver better results quarter after quarter, even while margins are compressing and capital is locked. By upgrading their underlying technology to Paxos Settlement Service, big players in the space can open up new opportunities to put assets to work, build additional revenue streams and create new business lines.

So how does this fit into the Paxos story?

If you are a current customer or partner, you might not see the connection. Maybe you use one of the stablecoins that we issue or power, like PAX, HUSD or BUSD. Or, you might use our Post-Trade Confirmation Service to confirm FX or commodities transactions. What you experience on a product-level is is part of a much bigger story. We look holistically at how antiquated our current, closed financial systems are, and this inspires us to build modern infrastructure of an open system. One that allows assets to take advantage of the distributed and decentralized nature of blockchain technologies so they can move any time, anywhere in a trustworthy way. A system that creates more access for more people, and liberates our assets to move more freely. Our ambitions go far beyond facilitating trading within the crypto world; we are digitizing traditional assets and building an open system that works for everyone.