1. A Blockchain Implementation
Equity Marketplace
A Blockchain Implementation

2. About us I am Tullio Menga, ICT architect and developer.
I have been working in Capital Market area during last twenty years, specifically in the field of high performance infrastructures.
I am currently collaborating with ATS, Milano (IT), having its core business in Capital Market.
ATS is Innovation Partner of UCL.
We are currently exploring use cases of blockchain technology in OTC derivatives, non-listed equities and several other areas.

3. DISTRIBUTED TRANSACTION
Blockchain in brief
SECURITY
NEAR-REAL-TIME
immutable, non-tamperable transactions
cryptographic encryption
consensus
transactions are etched to the ledger as they are processed
no need for end-of-day batch processes
IMMUTABLE
DISTRIBUTED TRANSACTION
LEDGER
REDUDANCY
PROCESS OPTIMIZATION
decentralisation
data replication on nodes
no single point of failure
smart contracts to define complex business logics
complex transactions execute atomically

4. FINANCIAL INSTITUTIONS
Blockchain in Capital Market
t+0
t+0
t+y
t+x
TODAY
Several back-offices use different technologies and interact at different times, leading to very complex, slow and non-atomic transactions, possible human errors and slow reaction to failures.
FUTURE
Distributed ledgers handle complex transactions atomically, in near-real-time, and share updates at transaction time, leading to safer and faster processes, less human errors and quicker reaction to failures.
FINANCIAL INSTITUTIONS
REGULATORS
Intracompany settlement
Loan settlement
Trade settlement
Trading
Collateral management
Derivatives clearing
Derivatives agreements
Cross-border payments
Trade reporting
Compliance reporting
Risk visualisation
Transparency regulation
Anti-money-laundring

5. OTC Derivatives and Equities
OTC Derivative Trading
NON-listed EQUITY Trading
Market Engine (book, matching) X
Post-trade settlement
Contract issuing (master agreement)
Contract maturity settlement
Shares management
Collateral management
Instrument pricing
Margination management
Trade-offs
Requires more features and more complex
More problematic normative aspects (may involve CCP obligations)
Requires less features
Easier normative aspects (no CCP obligations)
OTC Derivative Trading
NON-listed EQUITY Trading
Market Engine (book, matching) X
Post-trade settlement
Contract issuing (master agreement)
Contract maturity settlement
Shares management
Collateral management
Instrument pricing
Margination management
focus of this presentation

6. Why a blockchain? LEGAL PROCESS TECHNICAL Immutable Transaction Ledger
Ownership Provides a reliable register of asset property exchanges
Compliance Provides access to auditable data, verified and hard to tamper
No Central Counterparty Distributed ledger eliminates need of third-parties such as a CCP, and risk from single point of failure
Many Processes implemented on same Assets
1 transaction – many assets Transactions involving many assets, such as ollaterals can be implemented ‘atomically’.
1 asset – many transactions Different transactions involving the same asset, such as trading equity shares and using them for collateral allocation, can be implemented ‘atomically’.
Technical benefits
Several participants perform better Consensus is more reliable when the number of particdipants increase, without significantly loosing performance.
Near-real-time transactions Can make settlement faster, reducing the need of separate batch accounting processes.

7. Equity Trading Processes
CASH
LEDGER
SECURITY LEDGER
COLLATERAL LEDGER
asset: currency transactions: amount transfers actor: financial institutions
asset: equity shares transactions: ownership exchanges actor: custodians
asset: collaterals transactions: collateral allocations actor: central counterparties
blockchain pegging

8. Equity Trading Ledger EQUITY TRADING LEDGER
assets: currency and equity shares transactions: trades and collateral allocations smart contracts: custodian and central counterparty business logics actors: financial institutions only

9. OTC Derivatives and Equities
Private – Permissioned
Public – Permissionless
Participants
Controlled, trusted.
Free, trustless.
Potential market liquidity
Controlled by participants.
All the circulating crypto-currency.
Performance (current)
Higher (1 block <3s).
Low (1 block in minutes).
Security
Same as any common private network.
Relies on anonymous accounts, must be analysed in details.
Ledger permissioning
Embedded, rules defined by stakeholders.
Harder to control (participants can be anonymous).
Regulator / normative implications
Rules can be defined to meet regulatory compliance.
Regulatory institutions can be participants themselves
Harder to meet regulator compliance requirements (it is a natively cross-border platform).
Trade-offs
greater performance
finer permissioning control
more normative-oriented (CSDs plays a role)
more normative oriented
consensus basis must be built
greater potential penetration
greater consensus basis
slow performance
hardly controlled permissioning
harder to meet compliance rules (no CSDs)
public code, easier hacker attacks
Private – Permissioned
Public – Permissionless
Participants
Controlled, trusted.
Free, trustless.
Potential market liquidity
Controlled by participants.
All the circulating crypto-currency.
Performance (current)
Higher (1 block <3s).
Low (1 block in minutes).
Security
Same as any common private network.
Relies on anonymous accounts, must be analysed in details.
Ledger permissioning
Embedded, rules defined by stakeholders.
Harder to control (participants can be anonymous).
Regulator / normative implications
Rules can be defined to meet regulatory compliance.
Regulatory institutions can be participants themselves
Harder to meet regulator compliance requirements (it is a natively cross-border platform).
Our choice

10. Today
Ⓒ2014 ATS

11. Our Model – who does what
are the user participants of the platform
do trading transactions
do collateral allocation transactions
manage updating of balances on real-world bank accounts
Financial Institutions
are the owner participants of the platform
are responsible for normative compliance
read security ownership exchanges
manage updating of their security accounts
CSD(s)
Bank Accounts
Security Accounts
Interested in information from the ledger
In practice, may receive red information from participants
ideally, can be participants with read-only access to the ledger
Regulator
implement the market engine
business logic of CSDs, ‘atomically’ to trading transactions
business logic of CCPs, ‘atomically’ to collateral allocation transactions
Smart Contracts

12. Participation model – the actors
Participant
Institutions
Country CSD
node
node
API
broker
Retail Users
Professional Traders
broker
node
Associated
Institutions
Regulators

13. Participation model – the actors
Participant
Institutions
Country CSD
Participant pays transaction fees (own or Trader’s) to the Platform
Platform forwards part of collected transaction fees to each Participant
Trader pays transaction fees
CSD receives part of transaction fees collected by the Platform
Participant forwards part of the fee to the platform
Retail Users
Professional Traders
Associated pays own transaction fees to the Platform
Associated
Institutions
Regulators

14. Tomorrow
Ⓒ2014 ATS

15. Single Country
Country A

16. Multi Country
Country A
Country B

17. Multi Currency
Country A
Country B
Country C
Currency 1
Currency 2

18. Road map
Ⓒ2014 ATS

19. PARTICIPANT INSTITUTIONS
Road map
MARKET ENGINE
Developed
Performance-tested (>100 transactions/s on 10 nodes)
WHITE PAPER
Will be released on October 1st 2016
FULL IMPLEMENTATION
Will be released on November 1st 2016
Using Intelledger®, part of Hyperledger project of Linux Foudation
PARTICIPANT INSTITUTIONS
Currently building network
Involving Banks, Brokers, Institutions

20. Thank you
Ⓒ2014 ATS