This book focuses on development of blockchain-based new-generation financial infrastructures, in which a systematic, complete theoretical framework is proposed to explore blockchain-based securities trading platform, central securities depository (CSD), securities settlement system (SSS), central counterparty (CCP), payment system (PS) and trade repository (TR). The blockchain-based new FMI has attracted much attention in the securities industry. At present, the cross-border depository receipt (DR) business faces a dilemma between efficiency and security. In this book, the author proposes a blockchain-based new DR solution, manifesting the potential for using blockchain technology in the FMI field. In addition, using Hashed Timelock Contract (HTLC) as the underlying technology in the DR scenario, specific process and operations are proposed for delivery versus payment (DvP), delivery versus delivery (DvD) or payment versus payment (PvP) and other exchange-of-value methods. This book further studies how to carry out opening positions, end-of-day settlement of margin, forced liquidation and settlement at maturity, for exchange-traded derivatives, such as futures and options, under the blockchain-based technological framework. Blockchain technology not only naturally fits into the decentralized or non-centralized characteristic of the OTC market but also can effectively address the pain points and difficulties of the OTC market. This book provides an in-depth analysis of existing specific issues in China’s bond market, regional equity markets and asset management market, among other OTC markets, and proposes relevant blockchain-based solutions. Blockchain technology does not change the public policy objectives for FMI. Theblockchain-based new FMIs are still subject to compliance, safety and efficiency requirements. This book provides a comprehensive assessment of the applicability of the Principles for Financial MarketInfrastructures (PFMI) to them, in particular, analyzes their legal basis, off-chain governance and system security.
Author(s): Qian Yao
Publisher: Springer
Year: 2022
Language: English
Pages: 203
City: Singapore
Preface
Contents
1 Envisaged Framework and Key Considerations
1.1 Basic Framework
1.1.1 Traditional Framework
1.1.2 A Blockchain-Based New Framework
1.2 Framework Extension
1.2.1 DLT-PS
1.2.2 Decentralized Asset Trading
1.2.3 CCP Smart Contracts
1.2.4 CCP Smart Contracts and Trade Smart Contracts
1.3 Key Considerations
1.3.1 DvP and Settlement Risk
1.3.2 Settlement Period and Liquidity
1.3.3 Privacy Protection
1.3.4 Performance
1.3.5 New Role of FMIs
2 Blockchain-Based Cross-Border FMIs: Scenario of Depository Receipts
2.1 Existing Schemes
2.1.1 Entities Involved
2.1.2 Existing Business Processes
2.2 Prerelease of Existing DRs
2.2.1 Definition of DR Prerelease and Existing Mechanisms
2.2.2 Risks in Prerelease of ADRs: An Example of the U.S. Market
2.2.3 Conflict Between Efficiency and Security
2.3 Blockchain-Based DR Solutions
2.3.1 Conversion of Underlying Shares to DR
2.3.2 Conversion of DR to Underlying Shares
2.3.3 Corporate Actions of DRs
2.3.4 DvP, PvP and DvD for DR Issuance and Redemption
3 Blockchain-Based Exchange-Traded Derivatives FMIs: Scenarios of Futures and Options
3.1 Existing Schemes
3.1.1 Futures
3.1.2 Options
3.2 Blockchain-Based Innovation Schemes
3.2.1 Futures
3.2.2 Options
4 Blockchain-Based Over-the-Counter FMIs
4.1 Blockchain-Based Bond FMI Interconnection Solutions
4.1.1 Status Quo Analysis of China's Bond FMIs
4.1.2 Blockchain-Based Solutions
4.2 Blockchain-Based Regional Equity Market Scheme
4.2.1 Current Developments
4.2.2 Existing Problems
4.2.3 A Blockchain-Based Development Scheme
4.3 Blockchain-Based OTC Asset Management FMI Platform
4.3.1 Status Quo and Problems of OTC Asset Management Market
4.3.2 Blockchain-Based OTC Asset Management FMI Platform
5 Blockchain-Based OTC Derivatives FMI
5.1 OTC Derivatives and Trade Repositories
5.1.1 OTC Derivatives
5.1.2 Trade Repositories
5.2 Practical Pain Points
5.2.1 Stringent Supervision Brings Heavy Business Pressure
5.2.2 Low Efficiency Gives Rise to Automation Requirements
5.3 Blockchain-Based OTC Derivatives Information Exchange Platform and TR
5.3.1 Migrating Off-Chain Contract Information onto the Chain
5.3.2 Blockchain-Based TRs
5.4 Blockchain-Based OTC Derivatives Trading Platform and TRs
5.4.1 OTC Derivatives and Smart Contracts
5.4.2 Smart Derivatives Contract Trading Platform
5.4.3 Smart Trade Repositories
6 Blockchain-Based New Payment Systems: Digital Currencies
6.1 Digital Renminbi
6.1.1 ``One Currency, Two Databases and Three Centers''
6.1.2 Digital Currency and Bank Accounts
6.1.3 CBDC Scheme Based on Indirect Holding
6.2 Digital US Dollar
6.2.1 A Plan for a Digital US Dollar
6.2.2 Strategic Intent
6.2.3 Main Matters of Concern
6.3 Digital Euro
6.3.1 Digital Euro Characteristics
6.3.2 Technical Models
6.4 Perspectives on CBDC
6.4.1 Central Bank Money Faces Challenges: A New Currency War
6.4.2 From Private Digital Currency to CBDCs: Associations and Differences
6.4.3 Value Attributes of CBDCs: Central Bank Liability or Private Liability
6.4.4 Generation of CBDCs: Issuance or Exchange
6.4.5 Technical Route for CBDCs: Account-based or Token-based
6.4.6 CBDC and Smart Contracts: Prudent or Active
6.4.7 CBDC Operation Structure: One-tier and Two-tier Operation
6.4.8 CBDCs and Monetary Policy Tools: Interest-Bearing or Not
6.4.9 Regulatory Considerations for CBDCs: Balancing Privacy Protection and Regulatory Compliance
6.4.10 Conclusion
7 Trusted Identity, Digital Credit Reporting and Decentralized Finance
7.1 Trusted Identity
7.1.1 Definition and Value of Trusted Identity
7.1.2 Form of Trusted Identity
7.1.3 Big Data-Based Behavior Traceability Strengthens the Management of Cyber Trusted Identity
7.1.4 Trusted Identity System
7.1.5 Trusted Identity Use Scenarios
7.1.6 Key Elements of Trusted Identity Development
7.2 Digital Credit Reporting
7.2.1 Definition of Digital Credit Reporting
7.2.2 Design of Digital Credit Reporting Solutions
7.2.3 Value Analysis of Digital Credit Reporting
7.3 Decentralized Finance
7.3.1 Current Developments
7.3.2 Decentralized Exchanges
7.3.3 Decentralized Digital Asset Lenders
7.3.4 Risks of DeFi
8 Supervision of Blockchain-Based New FMIs
8.1 ICO and STO
8.2 PFMI Assessment
8.2.1 Legal Basis and Governance
8.2.2 Risk Management
8.2.3 Settlement
8.2.4 Participation and Links
8.2.5 Data Disclosure
8.3 Legal Basis and Off-Chain Governance
8.3.1 Legal Basis
8.3.2 Off-Chain Governance
8.4 System Security
8.4.1 Possible Single-Point-of-Failure Risk
8.4.2 Security of Digital Wallets
8.4.3 Security of Smart Contracts
Appendix Definitions and Technical Basis
A.1 Financial Market Infrastructure (FMI)
A.2 Financial Infrastructure
A.3 Symmetric Key Algorithm
A.4 Asymmetric Key Algorithm
A.5 Hash Algorithm
A.6 Hashed Time Lock Contract (HTLC)
A.7 Digital Currency
A.8 Double Spending
A.9 E-Cash
A.10 Bitcoin
A.11 Blockchain Technology
A.12 Distributed Ledger
A.13 P2P Network
A.14 POW
A.15 Mining
A.16 POS
A.17 Digital Wallet
A.18 Smart Contract
A.19 Public Chain
A.20 Consortium Chain
