The Future of Fixed Income Unleashing Tokenized Assets in Capital Markets

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   future of fixed income unleashing tokenized Assets in the capital markets um I am Kelly mat I'm the chief Business Development officer here at digital asset and I am delighted to have with me today two industry colleagues who will provide some incredible insight and perspective uh first uh who you see on screen is Monica Somerville she is the head of the capital markets practice at sellent uh and second is Richard frener uh who is the director of public

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   policy at Euro clear UK and international uh Richard is having a couple of challenges with his connection so you don't see him yet but you will at least hear his voice momentarily and hopefully see him on on screen but we will we will get him on the uh on the call to join um so just let me give a little bit of of uh foundational comments and some some housekeeping actually I'll do the housekeeping first so our webinar is uh today is being

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   recorded uh and it will be available on demand shortly after it wraps up for any of you who might want to view it again or share it with some colleagues uh we will have approximately 45 minutes of discussion uh followed by up to 15 minutes or so for for Q&A which means we actually welcome questions throughout the the discussion please feel encouraged to submit any questions that you have as you have them um as we go along in the discussion you could do that by um just entering the question

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   through the the question mark uh icon that's available in this tool and we'll Endeavor to answer them as part of our discussion or just hold them for the end but we really look forward to having some interactive dialogue with with you um so to set the stage for today's discussion momentum is building around the tokenization of real world assets for use in capital markets and of course Financial Services activities with recent developments signaling a significant shift towards more

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   accessible and efficient Financial systems um as one core example of this and we'll spend a little bit of time on this today the 255 56 trillion or so Universe of marketable Securities holds a immense untapped potential for use across Securities financing liquidity and claton management activities yet only a fraction of that about 11% is currently accessible for uses collateral now this is largely due to settlement system and

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   Market cutof time limitations the assets are just not easily or practically accessible for use across the markets and time zones so activating even just a sliver of these trapped assets could revolutionize the settlement and securities financing activities it could reduce risk enhance liquidity and unlock incremental yield opportunities for the asset owners however the rise of token islands for lack of a better description and fragmented Ledger Solutions

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   threatens to stall this progress creating new barriers for liquidity and market efficiency even Beyond those that we have already adding complexity to this the progress remains a bit uneven across regions and jurisdictions with Advanced markets experimenting with tokenization and the use of these assets While others you know frankly lag behind building Global Solutions requires

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   balancing both The Innovation with Legacy systems a real practical way of getting at creating Securities and payments rails while integrating them with the infrastructure that is already in place and will be for a reasonable period of time um U Monica if we could turn to you first with that is the foundation sellent has done some incredibly insightful research that can help set focus and the direction of in let's say the direction of innovation

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   travel for lack of a better description could you provide an overview of the market themes and the research and I think you have some uh information we're going to share on screen as well yeah there should be a slide with some data um and this is really picking up on the you know the theme of momentums if we we forward the slid there we go we go yes I I'll explain this chart in a

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    minute um but it's really just it's focusing on that momentum theme that you know that Kelly you were just talking about and this is data from a recent survey of financial institutions that Cent has conducted this is our annual Dimension survey and in that survey we ask about technology priorities strategies budget you know Trends across and this is across the buy at the sell side um in the Capital Market space so

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    this year we had over 200 respondents across the globe and the survey was conducted in the first quarter of the year we'll be doing it again um early next year so as part of the survey you know we asked loads of different questions but um we asked two questions in particular that I think are relevant here we ask respondents to sort of select the top three Technologies they think have the biggest impact on the

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    industry in the coming five years and we also asked them about the overall adoption plans um at their firm across a whole range of technology so it's on a scale from zero to five when zero is sort of being doing nothing and five through to kind of at scale in production um implementation so we've plotted those answers here and we've got the impact along the x-axis and um the average implementation so we've averaged those scores on the Y AIS um as you can see this this is the buy and the sell side combined so that's you know the

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    over 200 number um and as you can see Define tokenization placed in the highest in terms that's on the upper right hand side there placing the highest in terms of impact um and also ranks among the highest in terms of adoption status with the average score indicating that this is largely in an experimentation phase at their firm and I think that really aligns with what we've been seeing this year in the industry there's a lot of experimentation going on and just the early signs of that kind of production

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    work you know we did have some some of the respondents saying they're in that phase um blockchain General so blockchain GLT so that more General infrastructure and cbdcs in prot in particular as you can see on the chart here you know also score very highly in terms of both impact and adoption we've run this survey before so in terms of momentum I mean this is a static look at last year but we can share with you that

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    both Defi and blockchain were among the technologies that we're seeing some of the strongest momentum in terms of the impact ratings so on the cell side for example um when we look at this data from last year to this year um the only technology that had a biggest increase in expected impact on year you know the year-to-year basis was artificial intelligence I I think that probably won't surprise

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    anyone you know anyone with all the impact um and interest in gen this year but blockchain had the second biggest increase followed by Defi and on the buy side we also saw momentum increasing um in terms of what people thought was the impact of blockchain and Defi and in that case defi had a a stronger you know stronger momentum which again I think aligns with what we're seeing in the market and hopefully what we'll be talking about a little bit later in this

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    conversation um so there's just some some background hopefully to set our conversation up yeah no that's fantastic thank you actually very it's it's nice to kind of sort of see it laying out organized and I think it it it really does point to uh giving giving a real indication of where there is momentum and what I'll probably just add on is is what we're seeing is in deed that one of

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    the points that that you have on there the momentum for collateral Mobility has reached a critical point so this is kind of me asking and answering a question of myself on the panel but um we we're seeing that as a a critical point and we can come off the the screen um and and Advance It Forward um a critical point driven by evolving regulatory market and Technical factors that that you have

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    here um just to add on to it a digital asset we're working with clients to build the Canton Global collateral Network targeting five primary areas of Market transformation many of which I think kind of spring forth from the the slide that you just shared um just to run through them and give our perspective uh first what we're seeing is is a focus on improving liquidity and collateral management or collateral use

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    regulatory changes like ball 3's liquidity coverage ratio and the net stable funding ratio and initiatives to enhance Market stability such as the US uh the US's new rule to centrally clear all all eligible secondary Market us treasuries that's um starting next year all highlight I think the urgency of more efficient Global collateral systems seamless services are becoming a competitive necessity in this sense and what this means is that we're seeing an unlocking of assets to meet Rising

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    collateral demand I mentioned in the intro with only about 10 or 11% or so about 20 8 trillion of marketable Securities being mobilized as collateral today there's a vast untapped potential a network solution like some of the ones that you've pointed out on screen can unlock these assets without requiring risky or impractical Market settlement transfers um what we're also seeing is a focus on addressing fragmentation and inefficiencies which is a little bit of

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    motherhood and apple pie to anybody in capital markets but collateral in particular is often siloed in suboptimal locations increasing costs and reducing the performance of those assets to be onward Le used to meet margin obligations or as liquidity there was a a really good paper um recently done by B and euroclear that noted assets and I'm going to quote this because it's I just thought it was it was really uh specific and purposeful assets are often held in custody at a location other than where

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    they can be utilized as collateral most optimally introducing Dragon performance and increasing funding costs and other expenses for Market participants throughout the value chain uh what this translates into is another area of focus that that we're seeing enabling greater Capital efficiency through access to real-time data to be able to make decisions on how to move that that Capital around or minimize its use and the absence of immediate visibility into asset

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    inventories in the various locations around the globe limits their optimal use for really anything but in particular as a as a collateral allocation so Advanced Data infrastructure can solve this reducing Capital costs and improving balance sheet management that's some of the activity that that we get the great opportunity to focus on and then finally I think that the this all sort of adds

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    up to overcoming the limits of traditional processes now this isn't to say that there isn't going to be the need for integration a practical integration between Legacy and existing infrastructure and this new and emerging infrastructure but when you think about some of the processes and policies around them such as divergent settlement times and Market cut offs Reliance on manual processes and systems all of this

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    begins to restrict the ability to use assets efficiently around the globe in this case is collateral Mobility across geographies and time zones and that just frankly adds up not only to the lack of access that I've talked about but unnecessary risk and costs um so in short we're focused on this as part of a global collateral Network initiative to enable a seamless and efficient exchange of collateral across borders and time

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    zones fostering um Market stability and liquidity while reducing operational risks I said it's a little bit of motherhood in apple pie it's not something that the market hasn't wanted and demanded for years if not decades but it's now it's now that you can marry that strategy with a practical way of implementing it technologically and and operationally and that Vision not only allies with indust aligns with industry needs but also with involving regulatory

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    Frameworks making it quite timely and transformative right now um Richard I think we have you on at least by voice and that you can can hear me um perhaps you could build on this a a little bit uh pursuing these opportunities will require collaboration across the industry do you could you could you provide a bit of an overview of the public private partnership how our industry and supervisory authorities working together to mature or even just

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    confirm the legal framework and drive adoption yeah thank you very much you know certain irony that these questions about interoperability mean that I'm struggling to to get a video for you guys but I'm very happy to be invited in Jo in this conversation um so yeah bringing the Euro clear perspective to some of these questions that you've raised you know I would start by commenting um as we um explored distributed Ledger and indeed

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    you know other new technologies as a financial Market infrastructure our focus is really under understanding where our participant demand is first of all and second of all ensuring that what we do brings resilience first and foremost system so Euro clear has um embarked on a digitization journey um our dfmi platform and the first module uh in this has been our digital securi issuance platform so with that we've been successful with a

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    number of large scale production trade issuances we recently completed a program for the Asian infrastructure Investment Bank um that was a a total of $500 million inuence and what we saw there um was um really welcome development with the bank of England accepting that as eligible collateral so as we develop our efmi platform some of those um kind of qualities in terms of what liquidity the instrument is going to have is it considered eligible collateral art issuers they're going to

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    get the credit rating uh that that um is appropriate um you know those are at the front of our mod moving on specifically to this question about public private Partnerships you know I really think that um this sort of ecosystem shift that um moving on to you know different sorts of technological rails really requires that close public private partnership and indeed what we've seen

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    of these um specializing Landmark issuances is that they are coming from um supernational authorities or uh need uh sovereigns um focusing on the UK in particular um you know there's been a a discussion for some time about the prospect for a uh digital Sovereign uh issuance and indeed uh we heard the chancellor um make an announcement along those lines and the Man house speech

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    last month um so this is you know hm treasury taking a proactive did St to a digital guilt a pilot digital guilt and CH them to do this in their digital security sandbox and so you know that for them is an opportunity to happening in the UK you know observing how DT can be deployed um at scale and ensuring that the legal and Regulatory framework is fit for purpose uh all the while observing you know within a Sandbox environment you how the market

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    structure um you know ends up resulting in an efficient um and you know risk managed uh environment um and so those are some of the things that we're thinking about uh for Euro clear in the UK how we can partner with um that management office the uh authorities Finance Ministries central banks um to in a responsible and resilient way move forward on this digitization journey so I'll leave it there for the moment that's great thank you um actually really I think

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    interesting um to hear the progression of regulatory focus with the major Market infrastructure such as yourself that would be driving or executing the um uh the the activities around it um I want to go into that a little bit but before I do that actually um Richard I there there is a question I think that it's really more a question to ask if it's something that you would be willing to follow up on with the uh with the the uh person who raised it but they're

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    asking a question because I I I think it might not be something that that we could get deeply into right now but it's um from uh Michael Barry of candal who's asking with regard to the digital asset securities control principles that framework uh that was done recently by dtcc clear stream and yourselves um a two-part question that he had that that analysis did um did not include in its

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    scope um uh secondary trading or stable coins and and cbdcs and you know was there a a logic or a rationale for that or was was it really just more a practical U not biting off more than than you can chew in doing that analyses and then he was also asking that of the operational saving estimates um that were provided in that um analyses of about 15 to 20 billion is that a Pere annual savings um uh and then and then had some onward questions about it is

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    that something that that you'd be able to comment on now or should we take that away as a followup that's one that it would be better that I I refer folks to the authors of that report uh spefically well I can um say on a more General basis to this question of secondary markets is you what we have sought to do is take a kind of stepwise approach so um with that digital Securities issuance uh platform at Euro specifically that is one that

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    issues digitally native notes and secondary activity takes place in the Legacy environment and the driver of that is the essential issuer driver around those qualities that I described in terms of Need for liquidity uh concommittant um requirements around the credit rating and you know ultimately the the cost of funding uh you having said that um and as Kelly highlighted earlier you know

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    we're interested in these questions around secondary markets whether that's uh Buy sell repo transactions in collateral management system um you know how might those processes benefit from technology uh deployment and you know specifically indeed tokenization and and DT um and what you saw in that recent uh White paper the experiment conducted with the um world gold Council uh with

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    digital asset um was a enhanced uh mobility of collateral a you know system with so you know that sort of uh quite promising and certainly we do hear from Market participants about pain points and lack of automation uh within um some of the secondary markets and and the coudal management systems uh that that pertain you know I think in particular bringing in um assets like gold into that collateral management uh

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    environment and organized basis um is is you know really fascinating Prospect so you know bottom line on this and and you know on the control principles I can uh refer you to to some of my colleagues but the bottom line for me is you know looking at tokenization uh distributed Ledger and indeed other Technologies is a very exciting uh and kind a fertile area within that kind of collateral management uh uh discussion and you know we're eager to play our

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    part in uh an ecosystem shift whilst acknowledging that um you know ecosystem shifts are not easy there's a lot of investment that that is required it needs to be done in a way that maintains the confidence of um you know not only asset owners but also supervisors and and authorities um so really the approach that we're taking is to you know ensure each step of the way we're building confidence within the system um you know and proving what can be a um

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    you know at scale adoption with the you know levels of resilience that you'd expect from uh Financial Market infrastructure that's great actually it's a perfect um segue I was going to say now that we've each sort of given a little bit of the uh you know foundational perspective let's turn to some lessons learned from the past and I was going to say that crises are always good sources crises

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    that have unintended or unplanned ecosystem shifts as you've said Richard um are always good sources of guidance as New Market models operations and systems are are being created so let's talk a little bit about what are some key or critical Lessons Learned to keep in mind as we go through um and and instigate some of those ecosystem uh shifts uh that that that we've just been focused on or just commenting about Monica would you would you go first oh sure

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    um happy to and that's it's such an interesting discussion so far um but yeah I think this is a yeah it's a good it's a good segue to look at these crisises I think you know the obvious one to go back to is a 2008 financial crash you know that crisis um provided a real boost to Regulators pushing for increased transparency and it also had a huge impact on the on the capital requirements um the banks so both of

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    those were seeing kind of ramifications today today and their implications for blockchain technology so if you think about the new regulatory reporting requirements around trade and transaction reporting in particular from you know Dodd Frank and miid um overall push to clearing that we've seen as well and continue to see you know across different asset classes there's really a clear endorsement of this idea that the way to create Level Playing Fields is to

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    remove or diminish that element of sort of information as symmetry that Capital markets is famous for now uh plenty of people argue especially in the institutional markets that too much transparency too soon you know will have negative effects but I think for the most part Regulators have gotten their way in improving transparency especially um so I think some of the you know some of the the qualities of blockchain here

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    really play well into that space it's obviously accessible the information there um it can make data extraction easier so there's lots of interesting things that that parallel with the technology there um on the capital requirements front of course I think this is a big big tie in with the collateral management that we're hearing about there's a lot of interest here in mobilizing those assets um firms do have to keep a certain amount of capital it

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    has to be certain types of cap you know capital is high quality liquid assets not all these assets are accessible for collateral I think Kelly you mentioned something like 11% quoting that b wise study um of of certain assets are available for collateral so it's an area that again you know that we can see Roots back into that crisis when um you know all the capital requirements were increased uh looking at this also from a

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    DT and Tech angle I think we could also talk about the FTX fraud it had some useful learnings for The Wider industry people do talk about blockchain technology being immature they have concerns about the risks you know new risks that technology might bring but I think when we look at something like the FTX um fraud we should remember remember that really technology wasn't the main issue in this case I think if anything

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    the FTX collapse demonstrated the importance of really basic things like good due diligence um and that while clear regulation is useful and people are pushing for more clarity in especially in the blockchain DLT and tokenization space regulation alone is just never going to be the Frontline defense against fraud and that's really what the FTX collapse came down to it was more of fraud really not a failure of Technology

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    we should keep in mind that blockchain projects um when they are so-called hack it's usually a hack to do with a component of the blockchain something like the smart contract or an offchain component maybe someone stealing or compromising private Keys um I do feel like the blockchain industry is learning its lessons here as well though so data from blockchain tracking firm chain

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    analysis um they do an annual sort of study of a blockchain every year and they found that for the first time since defi Ence as an important sector of the crypto economy the yearly total stolen from def products fell significantly um for 2023 and the value of hacks defi hacks declined by nearly 64% year onye and the medium loss per hack dropped as well it was a lower percentage but you know still it's good to see it going down so of course there are several

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    reasons why those numbers might have dropped um but I like to think that it shows more awareness and proactiveness around defending against more obvious attack vectors um with this technology so I think the industry is learning lessons there as well excellent points thank you very much um Richard Do you want to build on any of your your prior points to add with regard to Lessons

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    Learned yeah absolutely and I think this is a a fascinating question around uh Financial crises when you know we see stresses in the system and consider what Lessons Learned are um and you know I can definitely see conceptually how some of the benefits of uh you distributed Ledger have have a bearing on on um questions of transparency automation um you know things that um are particularly helpful um in types of stress uh and and you the fact of the

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    matter is certain of these processes have not been um the um kind of cutting edge for uh investment and you know part of that is that question about the weight that goes with a ecos i if we even look at um shares in the UK there's still um you paper uh in in in the system uh you know it was only just re recently that uh retail investors were able to um access the guilt Market um uh through digital means I mean when you think about the sorts of

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    stresses that financial crisis brings um then more on the wholesale side when there are elements of automation U that you know are are are still yet to be achieved you can see that you there's important things to think about from a financial stability and and resilience uh perspective so you know I I think that um the lessons from 2008 from the uh uh ldi crisis are are ones that we need to you know continue

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    to to study uh and and assimilate uh you know you can see the um attractiveness of uh programmability and and smart contracts in some of the ways that more elegantly orchestrated collateral flows um could uh support Financial stability and and Times of stress um you know I think it's an area that still requires a lot of uh study and and you know I heard referred to um there's also risks that

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    come with u different uh Market structures forms of technology Etc and those need to be you know equally weighted as as we consider uh a future uh ecosystem uh might entail yeah I'm drawn by the the notion that we're all going back to some of the the recent Market crises to to look for for those Lessons Learned some of which were had repeated patterns from from from prior Market crisis so I want to make a a couple of Point I've live through some

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    of them so I want to make a couple of points but um two things that I I'll just do first one where I we got some questions in for some of the stats that that I had said and and cited um uh and I want to just just share those out with everyone so when I read that quote um that I attributed to bny and to urle that's from a h publication that they did together called uh uh Bridging the uh collateral divide in November of of

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    let me just get it November of 2021 um the 10th of November 2021 so Bridging the collateral divide is what you'd want to look for if you want more information on that and the stat that I and know others have been referring to of the marketable Securities and the proportion of it um that is actively used as collateral that actually comes from the Syma Capital markets Factbook I'm sure it's something that Monica is very

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    familiar with but that um Capital markets Factbook is published every July it's super handy um has a great wealth of information if you're you're interested in looking at it um and and that number has actually been increasing in the July of 2023 the Topline number was not 255 256 it was like 230 but the 10 or 11% has actually stayed relatively um the same which means that the challenge or the opportunity has been perpetuating for the better parts of years or decades um just so that I can give my comments on the same I'm going

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    to try and kill a couple of birds with one stone because we got a really good question in of what are some of the key challenges or barriers that need to be addressed in order to drive greater adoption and implementation of the collateral Network initiative that um that was previously discussed so when what I'll just add to the excellent points by Monica and Richard is when creating new market models and systems

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    um the past crises actually that they both mentioned um a couple of them stand out in my mind the UK guilt crisis and and 2008 of course um the financial crisis both underscore the critical importance of liquidity transparency and risk management and highlight how Solutions like distributed Ledger technology blockchain technology and the use of that in something like a global collateral Mobility Network can address the systemic vulnerabilities that um that that uh both of my uh uh uh

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    uh Partners here and speaking talked about um but just to to you know chew on each of those a a little bit more um the the UK guilt turmoil in in the September of 2022 revealed I think the challenges of liquidity mismatches and the challenges of rapidly mobilizing collateral in a stress Market pension I mean there's a lot of analysis out here I'm not suggesting that what I'm now

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    about to say is the be all and end all of it but just from my perspective Pension funds and other naturally long only long uh long or primarily long investors were forced to sell assets at at steep discounts in order to meet margin calls due to delayed access to being able to get control of collateral and the fragmented Market infrastructure by which they had to move that that collateral across so they're getting called for margin but in order to be able to meet that margin they have to

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    sell something to raise cash to meet that margin which further depressed the prices down and caused this procyclical downward spile that ultimately the bank of England um uh stepped in to help um ameliorate a global collateral Network would enable a few things real-time visibility into the availability of assets for uses collateral and the mobility of those assets across custodians and geographies intraday and real time reducing the time

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    lag in meeting obligations and mitigating that fire sale topic I I'll personally say almost entirely um this is familiar to me to to some of the challenges in the 2008 financial crisis which I had lived through in a in a prior role leading a clearing and collateral management uh business the collapse of trust in counterparties and the opaque risk exposures led to a cascading set of of failur But Central to that issue was a lack of a unified transparent system to track and manage

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    collateral and the collateral obligations effectively blockchain and and and so it was really just hard at the time to have a a Handler an understanding on what you were going to be called for as an obligation and whether or not meeting that obligation or the lack thereof was going to destabilize confidence in you as a as a market participant and was that going to create a precipitous um uh uh

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    precipitous set of activities that just further destabilized you to the point of in some cases non-existence so DLT or blockchain can offer that shared immutable Ledger where transactions and asset ownership are visible to to authorized parties not to everyone but to the parties who are obligated to know that as as as responsibilities or have access to it as an agent or custodial function and enhancing that transparency and reducing the counterparty risk

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    overall by by making that information available intraday real time fully synchronized and and then further moving beyond that to say that a network solution for collateral would optimize the ability to identify access and allocate it real time and all of that ultimately I think just bolsters Market resilience um even frankly during during times of tress so times stress so in in the end I would say both crises and all of the good points that Monica and Richard said they both underscore

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    the need for infrastructure that facilitates um in the case of the the use case that I've been chatting about this morning the need for seamless collateral Mobility real-time data transparency and and frankly robust risk management which is I think at the heart of of some of these points um a DLT or blockchainbased Global collateral Network such as we're focused on with the Canton Network addresses those needs directly offering tools and preventing similar systemic shocks um and and

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    ensuring that markets can can function smoothly frankly even in the time of Crisis which is probably the the the best measure of all um so those are just some of the points but I would add on to the the excellent insights um that have been shared um maybe what we could do is I'm just seeing some of the questions we could um uh switch gears a bit and and and Richard go back to you and then and

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    then to Monica in terms of um there's a question that's actually very tightly tied to one of the things that we were going to talk about this morning in terms of the technological advantages that are driving the lessons and changes that we just discussed where or what are the most promising technological developments happening today and I think the the question is kind of focused on

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    there's a lot of poc's and and and and and different temporary use cases out there but how are some what are you seeing as some of the best ways that for real practical production you say beyond the um evaluative pcc's um Richard do you wanna you want to chat first about that yeah happy happy to do that and um you know I'll go back to something that I sort of alluded to before and and really

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    taking a bird ey view um where you know on the one hand we are looking in the UK at dematerialization we're also looking at uh two plus one and of course then we're also um experimenting with distributed technology so you kind of see in that span sort of several decades worth of Technologies um that are um you know at this same time being um uh kind of dealt with on an ecosystem level so you know

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    from the um you know kind of first principles piece around if we are using electronic digital means rather than paper based ones um to uh transact in Securities you know how do we um ensure that those sort of hygiene factors are um you know being attended to so um you know part of this has to do with the uh rep platforming of the um crft uh settlement system uh that exists in the

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    UK and you know that um rep platforming is um being undertaken um using an event-based uh architecture um and essentially this is long similar lines to rtgs in the UK the system is being built using um very wellestablished technology while future proofing for the possibility to plug in DLT um you all on the basis that this is a kind of modular system um moving on to accelerated settlement you know that's

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    an area where we have seen the kind of necessary adoption of increased automation um and you know that is something that the US has has lived um and is uh coming soon to European markets um and you know I think that's another area where we're going to see focus of investment then you know finally with the question of uh distributed leer uh technology and tokenization um you know clearly these are uh you know exciting um opportunities to explore how the

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    financial system can be made more efficient and resilient and when we're thinking in terms of Technology you know I'm uh particularly interested in where there are um you know means to facilitate and drawability you know the real challenge that we've seen in this area has been um you know fragmentation and um you know how we avoid the well-known challenges that come with uh vertical silos so um you know my

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    focus um is thinking about right when we look at some of the um initiatives to move on from proof of concept like the digital Securities sandbox for instance what technologies need to underpin that in order to ensure we have you know wide distribution across the market u based on um you know interoperable infrastructure um so yeah those are some of the kind principle uh principles that I bring to

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    the question of of technology which you know ultimately for us is an enabler um to you know achieve the the kind of core purpose which is um markets that are well connected uh that are resilient and of course are are efficient as well fantastic thank you um Monica I wanted to to pose the same type of question to you and I want to to give you the chance to to answer that but we we actually have quite a few questions that have come in and I'm just looking at the time

85. 43:38

    and I want to make sure um we get a chance to to answer some of these questions so I'll give you the option of commenting on anything you want but I would like to pose one question to you because I think it ties back to some of the foundational comments you were saying so one of the questions that's come in is why is now the right time blockchain technology has been accessible for nearly 10 years to

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    traditional players and Legacy systems so why should an institution embark on the Journey of tokenization now instead of waiting for a major player to to take the lead actually Richard you might want as a major player you might want to comment on that as well but um Monica I was just thinking you might be able to give some insights from what you're seeing across the market yeah no it's it's a great question and it has been this technology has been in the market

87. 44:25

    for a long time and we went for blockchain to sort of crypto and back to blockchain um and you know the answer is depending on who you are as an institution maybe you do wait right maybe not not every institution is going to want to go and build their own blockchain or even host their own node you know they might not want to change the systems they use today and they're just looking for their providers to offer them a connection to that wider

88. 44:50

    Network so I would say what's really changed is things like the you know we have moved out of the exper experimentation phase there has been a lot of work and energy gone into this and a number of you just look at any of the large Banks they all have tokenization platforms or they have some sort of blockchain platform and many of these are in production you know you're thinking JB Moran HBC Goldman Sachs

89. 45:13

    Society General BMP par UBS you know they're all there with platforms we have eomi like EUR clear right they've got offerings in the market um we've got exchanges in the market so there are real in production plat forms that's a big change I think the awareness um about the need to break down silos has really come to pass you know the industry has always tried consortiums they're not very good at it but for some reason that seems to be working really well in the blockchain space we're seeing cross fertilization

90. 45:45

    we're seeing interoperability work going on you know early leaders like JP Morgan they're opening up the use of their tokenized deposit coin you know to third parties I have to say congratulations or o to visual asset too you know what you're doing with the Canon network is really helping in this this as well creating this sort of interoperable network um I know you're involved with a number of banks that I mentioned as well

91. 46:08

    and you know when you look at vendor Solutions like broadridge has their DL repo where you know their transa last I checked they were transaction about I think it's a mill a trillion trillion monthly trillion dollars mon um trillion and a half but who's counting know trillion and a half it's growing and I think they just moved right correct me if I'm wrong but they just moved to the daml Canton stack so all of that means

92. 46:31

    that we you know we really need good place and I think anything with technology and we saw that in the um the co at the co times as well how quickly everyone was to able to migrate to work from home and part of that was because all this underlying work that had been gone going on for years in order to move backends to the clouds there was this huge Cloud Journey a lot of people weren't aware of it and then we had a real need to take advantage of that and we had this Leap Frog where everyone

93. 46:57

    could suddenly do things from home they could never do before I honestly believe a lot of that background work has been going on in the blockchain space you people been quietly beavering away things like um you know the kind of things that that dl's been working on with Canton those are really good examples of that kind of Baseline work the interoperability issue is still something that we need to look at and that's interoperability between

94. 47:19

    traditional Financial uh networks and defi you know as well as blockchain to blockchain interoperability those are slightly different you know different things slightly different ways to to handle it I think an example of an important question about secondary markets so Richard mentioned that earlier I absolutely agree that secondary Market activity for tokenized assets that's really that's really

95. 47:43

    important problem to solve and it's interesting because Richard you get you kind of put a different spin on it um you know I always think of like we need a market where you can trade these these tokens in the secondary Market but you know some of what we talked about earlier means there's some new responses to that I haven't thought of before but um not all as I said not all Financial Market participants are going to want to change their platform so that interoperability is also a way of

96. 48:06

    thinking about what happens at the infrastructure level perhaps people don't even know they're on a blockchain network but they are do it so that's you know that's the other way you can approach it um so there are different approaches for I just wanted to touch them because what some of them use the very traditional technology which is apis right apis are used extens the industry that R trusted um technology so in some cases interoperability is is

97. 48:31

    just by leveraging apis you know off chain um I think on is an example of that then I think C has a note on the network um the other approach is really to to the decentralized nature so you're using things like cross chain interoperability Pro protocols they operate within a programmable token Bridge framework and that will integrate with various things like oracles which bring in that outside data and I think Kelly you mentioned this need to bring in you know outside data to create upto-date information in blockchain

98. 49:05

    Oracle are way to do that and that also facilitates um cross chain interactions so that's something to think about um and I guess other examples too you know we've seen blockchain as a service offering increase um you know there's a company out here Kido that's involved with a number of the projects in the financial industry and then even just more generally Cloud providers you know cloud is an enabl it's increasingly adopted across the industry a number of

99. 49:29

    Trad five venues are moving to the cloud some markets are in the cloud so you can also look at what they're doing with providing some of the blockchain infrastructure so all in all I think that's why it's a good time um to really be doing something now and thinking about your strategy do you want to be Hands-On with the technology or do you just want to make sure that your solution providers are Hands-On with the technology but you should have that optionality you really need to make sure

100. 49:54

     that optionality is there for you to be able to access the tokenized network and token you know tokenized assets going forward yeah very well said thank you for uh for for going through that I think that that's um this is also a very practical answer too I think what that that the time is just now simply because market adoption is is is starting to happen in real commercial ways right so yeah yeah no no no no no no no no I

101. 50:20

     don't mean it that way you said it you said it much better um uh Richard there is a question that's come in that has it's bit of a blend but it does have a regulatory and a policy bent to it so I'm going to I'm going to read the whole question just to be true to the person who was asking it um and perhaps you can provide your perspective on whichever components of the the question you feel comfortable chatting about um secondary trading and settlement in a digital

102. 50:46

     environment with stable coins and cbdc is a likely progression of DT collateral management um how difficult are the next steps what are the necessary components such as Regulators recognizing the liquidity value in digital assets yeah thanks for that so um you know listening to that question what I think about is the um element of uh transaction that involves cash right the cash leg this is uh an important um you know crucial consideration when we're thinking about how we um you know

103. 51:27

     ultimately look at an endtoend um system that is is on chain um you know in the uh Euro clear Bank uh dfmi that involved um tokenized Commercial Bank money um Euro CLE is a investor uh along with a number of other financial institutions in uh finality um which is um some people describe as a you synthetic uh Central Bank digital currency um and indeed you know we see um central banks across the world looking at the possibility of um Native if you like Central Bank uh

104. 52:19

     digital currency um and then so you know I think the heart of that question is um there are a number of different options um and when it comes to systemically important settlement activities what are the Comfort levels of authori is going to be with the different options you have out there and it's been an interesting discussion uh in in the market um in the UK um and that kind of public private discussion about what cash legs options look like in the digital security sandbox and I think

105. 53:02

     there's even you know the possibility that could evolve um as as the sandbox does uh but I think the key question is how do we ensure that the um you know stability of the financial system um is equal if not greater in a uh environment that utilizes uh DT rails um and you know a crucial part of that I clearly is going to be around uh central bank money that's great thank you um a couple other questions and I know we still have a few

106. 53:43

     minutes left so I'm going to try and jam them in uh and then and then and then give a moment for for any last words um uh one of the questions is how would a unified DLT Network for collateral work with custodians and and National C csds to keep claton movements in in sync um uh maybe you each have a a comment to to say on that but one thing I'll say just as a a way to start it was a really good publication that was put out by Augustine Carson's and and others at the

107. 54:15

     the bis about the concept of a unified Ledger and a finet uh concept which we we've heard the bis talk about a lot I think I think easy to to devolve into having a conversation about whether it's one Ledger or multiple ledgers that everyone around the world is going to use I've been in the financial markets for excuse me nearly 40 years and I've yet to see there be a a common system or a common solution or any anywhere near the semblance of agreement on doing that

108. 54:45

     so I'm not sort of holding out hope that that happens I think instead what it means when when we are in financial services and looking to have a network or a environment or an ecosystem whereby data can move more seamlessly more transparently in a more realtime matter what you're looking for are systems that can promote the the balance of having a sovereign or sort of total control over

109. 55:14

     the um the use of an app or the the the management and monitoring of an app if I am the creator of a solution I want to be able to decide who gets to use it as a a set of clients under what conditions and by virtue of bringing on one client it doesn't entitle them to know everything about all the other clients that I have so that sovereignty of an app needs to still be able to be

110. 55:38

     preserved in a in a network ecosystem the ability for me to set the rules for say my market or my system and what is important to me for privacy both because of how I run what I do but also for how I respond to and answer to the Regulatory and jurisdiction restrictions that I have that has to be preserved at the same time you have to have an ability for data to be able to move in a fully reconciled seamless and real time form and that to me is is what we're looking

111. 56:13

     to create with these ecosystems that allow for these separate Sovereign blockchain instances to to be operating but at the same time for data to be able to move back as the market participants want across um across them so to me when I think about collateral and the custodians and the national cstds they would necessarily each still need to preserve the agent role they have over

112. 56:38

     the collateral assets and the um ability to control and be the central Securities U for an asset nothing about that should change but in tokenizing those assets enabling them to move across a a network I can both get that best blend of having the control that that that I need either because I'm hired to do it or because I'm regulatorily defined to do it and at the same time make it so that that

113. 57:02

     digital form of asset is now unbounded by settlement systems and cut off times that were the prior way of preserving that control and and privacy so to me that is what a unified Ledger is is what we're striving for in the solutions that I've talked about this morning um to be able to not not rip away from a custodian or a CSD there ability to to provide services on the real world asset um and to to you know operate under contractual regulatory controls but at

114. 57:35

     the same time make that data now make that asset Express now in a digital form so that the data can move seamlessly across applications as I as a collateral user or Market participant would want it to um I don't know if Monica Richard you want to add anything uh onto that but I do want to leave some time for any any last words so maybe Monica you want to add on or any last Last Words as we wrap up the webinar for can't believe we actually have gone up to the actual end

115. 58:04

     of the to I we could just a whole section on this I do think what you just said was excellent I do think custodians already manage a lot of connections and I think one thing to think about when you connect networks is like what is it you're trying to get across are you just trying to get the data and information across there's legal issues around ownership does that transfer to the next Network so it's not always a technical question and they're doing it now you know custodians they sit in between a

116. 58:28

     lot of different providers and they have to juggle some of these kind questions and the issue of real world and tokenized assets going going to be an issue for a while so again there's a need to provide a unified view across that so there's a lot of ways that cudan still need to add value and Richard thank you Monica that it's just been wonderful having you here today and all of your thoughts Richard maybe some last words on your part since

117. 58:53

     you are both a custodian and a SD yeah thank you so you know I think the first place to start is we need good International standards from public authorities and then that FMI cooperation that indeed Euro clear has has kicked off with dtcc and clear stream ultimately these private sector infrastructures are the ones responsive to Market participants so are going to help Advance this so yeah another plug to that paper if you want to to read more about our ideas in that space great thank you well listen we are we

118. 59:28

     are bang on the the top of the hour thank you to all of you who joined thank you for all the questions if we didn't get to your questions I've tried to write you back and we will um get time with you directly or I'll get help get you connected to Richard or Monica um if you have anything that comes up after this that you want to ask us please just reach out and thank you again to Monica and Richard for taking the time today

119. 59:52

     thank you appreciate the invite