Blockchain simplified – Finance 2.0 / Crypto ‘16

Rolf Broekhuizen, Crispin de Courcey-Bayley - SIX Swiss Exchange

Zürich | 13 Sep 2016

Introduction

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Introduction

Overview

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Background

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We need to have a common understanding of what it is…

Blockchain: Where to begin ?

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Blockchain: overcoming the misunderstandings

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Blockchain is a ledger – but this is nothing new.

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Bitcoin is money – coins have been around for a while.

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Bitcoin allows addressed payments over large distances.

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History of Money – Paper money back by the state.

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Cash transactions: a rare form of transferring money

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Background of Bitcoin

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Bitcoin

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• A ledger spread across many computers

on an open network;

• Highly scalable and resilient;

• It uses cryptography to encode payments;

• It validates transactions by consensus;

• It requires no intermediaries;

• It prevents double spending by time-stamping and

broadcasting all payments across the entire network;

• A proof-of-work concept makes transactions very hard to undo

Bitcoin in a nutshell

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A video about Bitcoin

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Random text generator

Hash generator link

Creating a hash

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Bitcoin solves the double-spending conundrum

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Create a block and put it in a chain

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Hashing the block

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Permissioned Distributed Ledger

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International Law

National Law Ordinances

Governance

Legal obligations or technical code ?

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Code

Legal obligations or technical code ?

Code

Code

Code

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Blockchain or DLT or just a shared ledger ?

Who: Everyone SIX members SIX members SIX

How: Open Authentication Authentication N/A

What: Everything Everything Relevant info N/A

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Shared ledger architecture

Value Chain

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SIX as a leading fully vertically integrated exchange

providing the Swiss Value Chain

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Source: SNB

Trading

Clearing

Settlement

Seller

delivers 1000

receives CHF 42,600

Buyer

receives 1000

pays CHF 42,600

Buyer Collateral SellerCollateral

Buyer SellerOrder

Buy 1000

Order

Sell 1000

CHF 42.60 per share

matched

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Let’s take a second look at the value chain

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Trading

Clearing

Settlement

Seller

delivers 1000

receives CHF 42,600

Buyer

receives 1000

pays CHF 42,600

Buyer Collateral SellerCollateral

Buyer SellerOrder

Buy 1000

Order

Sell 1000

Source: SNB

CHF 42.60 per share

matched

Tim

ing

is

T p

lus 2

da

ys

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Let’s look at the full picture

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Ledgers ( ) are in every node in this landscape.

Which ones shall we replace with distributed ledgers?

Clients Banks

Stock Exchanges

CSDs

LSE

DB

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SIX and its members

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This is what is currently being discussed in SIX – small steps

Clients Banks

Stock Exchanges

CSDs

LSE

DB

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Summary

Requirements

• A virtual currency that is not bitcoin

• Ability to ensure that members’ portfolios are not visible to their competitors

• A SIX-validated ledger system exclusively for regulated financial institutions

Benefits

• Much faster settlement, freeing up capital for our clients

• Greater efficiency for our clients through further automation of the back office

Challenges

• Migration of the securities

• No short selling possible, you can only enter a sell order if you have the security in your portfolio

• No end of day netting for market makers

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Summary

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Summary

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The current implementation of the SIX value chain for post-trade

settlement derives from paper-based processes.

DLT offers opportunities not just to ‘tweak’ existing processes, but

to re-invent certain SIX services.

Succeeding requires an extensive collaborative harmonisation of

business processes between existing parties.

Thus we believe that this change is likely to be gradual and

accretive and not revolutionary.

Conclusions

Thank you for your attention

Rolf Broekhuizen, Crispin de Courcey-Bayley

SIX Swiss Exchange