Mizuho Bank and Fujitsu Trial Blockchain to Streamline Cross-Border Securities Transaction Settlements

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Signage for Mizuho Bank Ltd. is displayed as pedestrians walk past a branch in Tokyo, Japan, on Wednesday, May 15, 2013. Japan's three biggest banks led by Sumitomo Mitsui Financial Group Inc. forecast earnings will decline this year as monetary easing makes loans less profitable even as borrowing picks up amid an economic recovery. Photographer: Kiyoshi Ota/Bloomberg
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Mizuho Bank, Ltd., Fujitsu Limited, and Fujitsu Laboratories Ltd. today announced that they have jointly conducted an operational trial using blockchain technology(1), which makes it practically impossible to tamper with transaction histories, to shorten the processing time for cross-border securities transactions, from the current three days to same-day settlement.

Combining Mizuho Bank’s expertise in post-trade processes as a leading Japanese custodian bank with the expertise of Fujitsu and Fujitsu Laboratories in designing and building payment systems, as well as in applied blockchain technology, the companies plan to utilize their respective strengths to create an exceptionally convenient financial system that reduces the risks associated with cross-border securities transactions, such as price fluctuations.

Background

Due to the complexity of the process for cross-border securities transactions, it usually takes three days from trade execution to final settlement. This is because at each step in the process, from when the trade is initiated at the securities exchange to the actual settlement, a great deal of time is spent checking the settlement instructions and transaction content for inconsistencies. As the asset manager is exposed to such risks as price fluctuations if the counterparty goes bankrupt during the period between executing the trade and completion of the settlement, it is desirable to shorten the settlement process.

Previously, there have been attempts to reduce the number of days required for settlement by eliminating this sort of complicated instruction checking process and sharing data through centralized management. However, issues such as the large cost of system operations management made the initiative impractical.

Details of the Joint Trial

1. Goal

The goal was to enable low-cost, low-risk cross-border securities transactions by building a system utilizing blockchain technology that can almost instantly share matched trade information in the post-trade process as data that cannot be tampered with, but without building a large-scale settlement system from scratch. This would thereby shorten the time from trade execution to final settlement from the previous three days to the same day (figure 1).

2. Trial Period

December 2015 – February 2016 (completed)

3. Operational Trial Summary

In conducting this joint trial, Mizuho Bank was responsible for providing its expertise with the securities settlement process, Fujitsu Limited conducted the development, evaluation, and testing of the trial system, and Fujitsu Laboratories undertook the trial application of blockchain technology.

Using the blockchain Open Assets Protocol(2), the three companies built a blockchain-forming system in Fujitsu’s cloud environment, recording the information from a confirmation (matched trade information: securities name, quantity of securities, currency code, amount, country of settlement, settlement type, settlement date) as one linked block. In the system, continuously generated blocks containing trade information were chronologically linked as blockchain, becoming information that could not be tampered. And, because the information could be shared between multiple companies, the partners confirmed that it was possible to shorten the time required in the post-trade process.

4. Developments Going Forward

The three companies will use the results obtained in this operational trial to consider further the path to practical application of blockchain technology to cross-border securities transactions from March 2016.

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About Richard Kastelein

Founder of industry publication Blockchain News, partner at ICO services collective CryptoAsset Design Group (helped raise over $200m+), director of education company Blockchain Partners (Oracle Partner) and ICO event organiser at leading industry event  CryptoFinancing (first ICO event in Europe) - Richard Kastelein is an award-winning publisher, innovation executive and entrepreneur. He sits on the advisory boards of half a dozen Blockchain startups and has written over 1200 articles on Blockchain technology and startups at Blockchain News and has also published pioneering articles on ICOs in Harvard Business Review and Venturebeat.
 
Kastelein has spoken (keynotes & panels) on Blockchain technology in Amsterdam, Antwerp, Barcelona, Beijing, Brussels, Bucharest, Dubai, Eindhoven, Gdansk, Groningen, the Hague, Helsinki, London, Manchester, Minsk, Nairobi, Nanchang, San Mateo, Shanghai,Tel Aviv and Venice. His network is global and extensive.
 
He is a Canadian (Dutch/Irish/English/Métis) whose writing career has ranged from the Canadian Native Press (Arctic) to the Caribbean & Europe. He's written occasionally for Harvard Business Review, Wired, Venturebeat, The Guardian and Virgin.com and his work and ideas have been translated into Dutch, Greek, Polish, German and French.
 
A journalist by trade, an entrepreneur and adventurer at heart, Kastelein's professional career has ranged from political publishing to TV technology, boatbuilding to judging startups, skippering yachts to marketing and more as he's travelled for nearly 30 years as a Canadian expatriate living around the world.
 
In his 20s, he sailed around the world on small yachts and wrote a series of travel articles called, "The Hitchhiker's Guide to the Seas' travelling by hitching rides on yachts (1989) in major travel and yachting publications. He currently lives in Groningen, Netherlands where he's raising three teenage daughters with his wife and sailing partner, Wieke Beenen.

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