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Swiss OTC BlockchainInformation about the Swiss OTC Blockchain

Michele Forte, michele.forte@ti8m.ch

Walter Strametz, CTO, walter.strametz@ti8m.ch

24.02.2017 2

SWISS OTC CHAIN

For people who believe in enterprises, not in institutions.

24.02.2017 3

Konsumenten haben keine direkten Zugriff auf den Markt und können keine Anteile halten.

OTC – Der Ablauf heute ist der von gestern

Buyer

Assets

Capital

Emittent

(Buy)Broker

(Sell)Broker

CentralCompliance

Aktienbuch

Bank Bank

Orders

Seller

24.02.2017 4

… die Swiss OTC Blockchain kommt theoretisch ohne Broker und Custodians!!!

OTC – Ablauf mit der Blockchain

SharedDatabase

SmartContract

SmartContract

SmartContract

SmartContract

SmartContract

Swiss OTCBlockchain

BrokerSeller

Buyer

SmartContract

Read accessaccording to

authorization

Share Registrar

Custodian

Regulatory/Central

Counterparty

Payment

disruptive!

buy & sell

24.02.2017 5

Manueller Prozess kann weitgehend automatisiert werden

OTC – Automatisierte Compliance

p l an n i n g

sco p e

Tran sact i o n s

O ve rv i e w

Bl o ck ch a i n

Vorteile- Transparenz, keine Zeitverzögerung- Automatisierbarer Review- Niedrigere Fehlerquote- Compliance durch Smart Contract durchsetzbar- Neue Services – Steuer, Nationalbank u.a.

Kritische Bedingungen:- Kann nur durch gemeinsame Anstrengung erreich werden- Lokale Datenhaltung erst am Anfang- Eff iziente Systeme müssen abgelöst werden – Kostenfaktor

24.02.2017 6

OTC – Ablauf mit der Blockchain

Custodian Bank

Broker

Share registry manager

FINMA

- Order entry mask / API

- Trade entry mask / API

- Trade confirmation mask / API

- Trade registering mask / API

- Settled trades

- Trades registered in share registry

- Orders to be filled

- Trades to be confirmed

- Trades to be registered

- MIFID II Report

UI & Tools Information

24.02.2017 7

OTC – Von OTC über ICO bis zu Derivativen

Architektur der OTC Post-Trade Capturing ist Basis für einen komplett dezentralisierten Markt aus Basis Blockchain.

Post Trade Capturing and Smart Contracts as derivatives

Order book and market making (matching) on the chain and

Remove central exchange institution

KYC and decentral orderbook

Fully decentralized ledger

Automatisiert: Derivative werden durch «Smart Contracts» abgebildet. Transaktionen werden direkt auf der Blockchain ausgeführt. Kein Paperwork oder Verwaltungsaufwand.

Peer-to-peer: Die Blockchain übernimmt die Funktion des Marktes, bringt Angebot und Nachfrage zusammen.

Verteilt: Zustand der Derivative ist jederzeit für alle einsehbar – oder je nach Inhalt des Smart Contracts – auch für alle änderbar.

Compliance und Anforderungen und Reports an eine «Central Counterparty» werden automatisch durchgeführt, neue Anforderungen durch Updates automatisch propagiert.

Betrieb der «Börse» ist hoch flexibel – z.B. können die Betriebskosten durch das «Mining» abgedeckt werden; Switching Cost: 0.

Neue Marktfelder durch deutlich geringere Kosten.

OTC & ICO

Derivatives

KYC Services

Compliance

24.02.2017 8

OTC – Detaillierter Ablauf auf der Blockchain

KYC database

Custodian Bank S

Blockchain ID (uPort)

PPK / SK infrastructure

IPFS

Ethereum Blockchain

Legacy order management

SIC payment system

Share registry management

Broker S Custodian Bank BBroker B SIX Share

registrar

FINMA

Order / Trade entry masks

2

4 8

17

15

18a

19

23

24

21a 21b

25

28

29

16

20b20a 26

3

1

5

6

7

9

10

11

2

412

3

1

5

6

7

18b

22

27

13

14

24.02.2017 9

OTC – Detaillierter Ablauf auf der Blockchain

Steps Step Description Interfaces

1 Custodian Bank customer is represented on

Blockchain (has unique Blockchain Address). This

address will be part of a Blockchain ID system in

the future, but not yet in this stage of

development.

Blockchain

2 Customer ID is linked to KYC database / legacy

system of Custodian bank, and can be retrieved.

Legacy KYC system/

DB

3 Custodian Bank retrieves customer ID, and

encrypts it with public keys of itself, of registry

manager, and of regulation authority

Encryption

infrastructure

4 Custodian bank creates order file with Asset and

quantity to be traded.

Custodian bank also includes info about

execution broker and the 3 encrypted Customer

ID copies into order file

Order entry mask.

Interface to Valoren-

Nb DB (Standardized

ID of companies)

5 Order file is encrypted with keys from Custodian

Bank and Execution Broker

Encryption

infrastructure

6 Both encrypted order file copies are saved in

IPFS

IPFS

7 IPFS order files are hashed, and hash stored on

Blockchain.

Attribute “pending” is set.

Execution Brokers are notified about new Orders

that are entered for execution

Ethereum Blockchain

8 Broker S creates trade file, after having off-chain

executed the trade with buyer broker.

To do so, Broker S indicates the file of a specific

sell order, which was executed.

Hash of sell order file is saved in trade file.

The order details (Asset, quantity,, side

(buy|sell), ordertype (at market | limit),limit

price, currency (always CHF), Broker S, Custodian

S, and encrypted ID of Seller) are automatically

filled in with the info from the order file

The broker S adds the following information:

Price, fee, broker B.

Trade entry mask

Order overview GUI

for broker

9 A copy of the trade file is encrypted respectively

with Public key of Seller broker S and buyer broker

B

Encryption

infrastructure

10 Encrypted trade files are saved in IPFS. IPFS

11 IPFS trade files are hashed, and hash stored on

Blockchain.

Trade attribute is set to “open”

Sell order attribute is set to “processing”

Buyer broker (trade counterparty) is notified about

new trade to be confirmed

Ethereum Blockchain

12 Broker B confirms trade in entry

mask.

To do so, Broker B indicates the file of a specific buy

order, which was executed.

The trade entry mask double checks info about

Asset, q, and adds the 3 encrypted Customer B IDs

from the buy order file.

Buy order file hash is saved in trade file.

Broker B double-checks price of trade.

Trade entry mask link

to order file

13 A copy of the trade file is encrypted respectively

with Public key of Seller broker S and buyer broker

B, share registry manager, SIC, and of regulation

authority (5 copies)

Encryption

infrastructure

14 Encrypted trade files are saved in IPFS. IPFS

15 IPFS trade files are hashed, and the previous hash

of the trade replaced on Blockchain.

Trade attribute is set to “confirmed”

Buy order attribute is set to “processing”

Ethereum Blockchain

16 SIC is notified about a confirmed trade that needs

payment processing

Ethereum Blockchain

17 SIC reads file of confirmed trade and executes

required payments:

Payment from Custodian bank B to

Broker B

Payment from Broker B to Broker S

Payment from Broker S to Custodian

Bank S

Interface SIC -

Blockchain

18a

18 b

18 c

18 d

SIC Account of Custodian Bank B is debited with the transaction

Amount

SIC Account of Broker B shows net zero (debit and credit offset)

SIC Account of Broker S shows net zero (debit and credit offset)

SIC account of Custodian Bank S is credited with transaction

amount

-

19 SIC confirms payment and sets Trade record attribute to “paid”

SIC sets Sell order attribute (as identified by order file hash in

trade file) to “filled”

SIC sets Buy order attribute (as identified by order file hash in

trade file) to “filled”

Ethereum Blockchain

20a

20b

Custodian Bank S gets notified by Ethereum Blockchain about

new trade that has settled, and updates positions in securities

accounts correspondingly

Custodian Bank B gets notified by Ethereum Blockchain about

new trade that has settled, and updates positions in securities

accounts correspondingly

Ethereum Blockchain

Custodian Bank legacy

system

21a

21b

(Optional, once Customer has ID and PPK):

Custodian Bank S saves the trade transaction hash to Blockchain

ID file of Seller.

Custodian Bank B saves the trade transaction hash to Blockchain

ID file of Seller.

Ethereum Blockchain

Functionality to update

Customer ID file

22 Share registrar is informed about new trades that need

processing

GUI / Interface to

Blockchain system

23 Share registrar unlocks IPFS trade file with Private Key IPFS

24 Share registrar updates share registry with info from trade file.

For shares that need approval, it reaches out to company and

gets decision about registering of the shares

-

25 Share registrar updates status of trade record on Ethereum

Trade Attribute is set to “Registered”, or: “Rejected”

Interface to Ethereum

with write rights

26 Custodian B gets notified by Blockchain about trade registration,

and updates its Database with the registration status of

customer B.

GUI / Interface to

Blockchain system

27 Finma identifies suspect via Blockchain ID Interface to Blockchain

28 Finma unlocks all trade transactions GUI / Interface to

Blockchain system

29 Finma filters all transactions according to suspect Blockchain ID,

and compiles report

GUI / Interface to

Blockchain system

Steps Step Description Interfaces Steps Step Description Interfaces

24.02.2017 10

Die Unveränderbarkeit der Smart Contracts treibt das Design!

OTC – Design Pattern Ethereum Smart Contracts

BusinessLogic V2

Robustness

AccessControl

DataStorage

LibraryN

Library1

Library2

BusinessLogic V1

DAO

24.02.2017 11

Daten sind «öffentlich» aber nicht für alle lesbar.

OTC – Design Pattern Ethereum Smart Contracts

24.02.2017 12

Swiss OTC Blockchain is designed to be a public shared ledger!

OTC – 100 % disruptive architecture of the Swiss OTC Blockchain

The “Shared Ledger Vision” is, where participants collaborate to maintain a shared record, assured to be consistent between them, consuming the services of existing and new service providers and market infrastructure providers on an open and competitive basis.

Source: Corda non-technical white paper

Slide

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