An American Bank Employs Blockchain to Work Out Stock Trades
The Bank of America(BofA) has become the most recent Wall Street institution to integrate blockchain solutions into its systems through the Paxos Settlement Service. This move by the second largest bank in America seeks to attain a same-day settlement of stock trades, thanks to the blockchain technology Paxos provides.
According to Kevin McCarthy, BofA’s head of financing and clearing, the fast settlement option with Paxos will start once the bank is cleared to operate as a clearing agency. In 2019, the Securities and Exchange Commission agreed to let Paxos undertake a pilot program that uses its blockchain to examine the platform’s settlement possibilities.
After receiving the no-action letter, Paxos revealed Société Générale and Credit Suisse as its new adopters of the settlement service, making BofA the third financial entity to leverage this product.
Why Banks Look Up to Blockchains
Paxos Chief Executive Officer, Chad Cascarilla, admits that the current stock settlement systems spearheaded by platforms like the Depository Trust and Clearing Corporations take longer periods to complete trades. DTCC takes the T+2 approach, which implies concluding transactions, and every paperwork takes two days via legacy software.
It also implies that DTCC leaves out 75% of daily stock trades since it only executes trades logged by 11:30 a.m. Therefore, BofA’s decision to pursue Paxos settlement product directly affects DTCC since the blockchain advancement applies the T+0 method, settling trades within minutes or on the same day. In turn, this implementation could boost the rate of return on assets.
On April 12, 2021, J.P. Morgan announced that it intends to use blockchain technology with a mission of upgrading its funds transfer system between banks worldwide. The solution dubbed Confirm hopes to lower the number of rejected transactions caused by discrepancies in payment details.
Paxos is a New York-based financial body that offers a frictionless movement of digital and physical assets in a digitized manner. Paxos enables an ecosystem where assets can be tokenized, settled, and traded in the market through its technology.
The blockchain startup has experienced notable growth since its launch in 2012 and managed to receive support from popular companies such as PayPal and Liberty City Ventures. Interestingly, the platform has two stablecoin products named Paxos Gold and Paxos Standard, each backed by physical gold and USD. Paxos also offers investors a brokerage option to open up access to cryptocurrencies.
In essence, this regulated financial institution democratizes a modernized financial system by combining traditional finance with the digital era.