Note: Descriptions are shown in the official language in which they were submitted.
A DVP Settlement Method Based on Blockchain Technology
Technical Field
[0001]
The present application relates generally to blockchain, and in particular to
a delivery
versus payment (DVP) settlement method based on blockchain technology.
Background Art
[0002]
Delivery versus payment (DVP) is a common form of settlement for securities.
DVP
refers to a settlement procedure in which during a securities trade, the
transfer of security from a
seller to a buyer occurs at the same time as the transfer of the associated
payment from the buyer
to the seller, on the settlement date specified by both parties.
[0003]
Prior settlement methods used in the securities market such as Delivery Versus
Free
or Payment in Advance, either failed to implement the simultaneous delivery of
funds and
securities, placed the two parties in an unequal position, caused settlements
to occur slowly, or
otherwise caused other problems. The DVP approach greatly improves the
settlement procedure,
so that efficiency can be significantly enhanced.
[0004]
Securities trading, buyout repo and pledged repo can be settled using DVP
settlements. In many international capital markets, DVP settlement has long
been an accepted
standard practice, providing an efficient settlement method that helps prevent
settlement risks
and related disputes.
[0005]
Blockchain is essentially a decentralized database of accounts that records
all
transactions. A blockchain is a series of blocks that are generated using
cryptographic
techniques. Each block contains information regarding a transaction on the
bitcoin network,
including data that can be used to verify the validity of the information
thereby exhibiting anti-
counterfeit characteristics, and to generate the next block. Blockchain is the
underlying
technology that enables crypto-currencies such as Bitcoin.
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=.
[0006]
Although both Bitcoin and DVP have advantages, platforms that combine the
benefits associated with both frameworks have not been available. Accordingly,
it is desirable to
provide a system that combines at least some of the advantages of DVP and
blockchains.
Summary of Invention
[0007]
In accordance with one aspect of the present invention, there is provided a
method of
delivery-versus-payment (DVP) settlement of a securities transaction between
two parties A and
B, based on a blockchain system. The blockchain system includes an asset
blockchain (ABC)
and a trading blockchain (TBC). The method includes (a) checking whether the
balance of asset
of each of the two parties is enough on their respective asset blockchain; (b)
executing the trade
on the trading blockchain; and (c)
simultaneously broadcasting to the asset blockchain,
thereby completing the DVP settlement.
Brief Description of Drawings
[0008]
In the figure, which illustrates by way of example only, an embodiment of the
present invention, FIG. 1 is a schematic block diagram illustrating a
blockchain based method of
DVP settlement, in accordance with one exemplary embodiment.
Description of Embodiments
[0009]
The technical problem to be solved by this invention is to provide a DVP
settlement
system and method based on blockchain technology, which improves the
timeliness and
reliability of settlement and clearing of trades in securities.
[0010]
In one aspect, embodiments of the present invention provide a DVP settlement
system and method based on blockchain technology.
[0011]
An exemplary blockchain system, used in the present invention, includes a
plurality
of nodes and at least two separate blockchains. The two blockchains are a
trading blockchain
(TBC) for processing trade transaction information, an asset blockchain (ABC)
is used to
maintain asset account information. The TBC is used to store trade transaction
data, while the
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ABC is used to maintain asset account information. The TBC reads and writes,
said account
information, from and to the ABC respectively.
[0012] When two parties, named A and B, intend to trade securities with one
another using
an exemplary blockchain system, the parties first need to obtain the asset
balance from their
respective asset blockchain ABC. The parties then check whether the asset
balance is sufficient
for the proposed transaction. If the balances are sufficient, the parties then
trade on the trading
blockchain TBC, simultaneously broadcast data related to the transaction to
the asset blockchain
ABC, and finally complete settlement and clearing.
[0013] In one exemplary embodiment, before the transaction is commenced,
the trading
blockchain or TBC needs to perform the following steps:
[0014] Step 1.1 on ABC, freeze the accounts of A and B (account A and
account B
respectively) which are involved in or concerned with the transaction. The
nodes of the ABC will
vote and the ABC will build blocks to ensure the freezing of the assets in the
concerned accounts
of party A and party B (account A and account B respectively) on ABC.
[0015] Step 1.2 copy the frozen assets of the transaction parties A and B,
to the TBC by
using the blockchain encryption method;
[0016] Step 1.3 the TBC will vote on the asset data of A and B sent by the
ABC to all the
nodes of TBC, and build blocks to record that the asset that received by TBC;
100171 The trading blockchain TBC further performs the following steps
during the
transaction:
[0018] Step 2.1 Party A and party B, each conducts the transaction on the
TBC;
[0019] Step 2.2 the TBC performs transaction voting and builds blocks for
the transaction
between parties A and B, and guarantees the transaction is completed and
recorded on the TBC;
[0020] After the transaction is completed, the following steps are
performed:
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[0021] Step 3.1 TBC uses blockchain encryption to back up the updated asset
data to the
ABC, for both account A and account B;
[0022] Step 3.2 the ABC votes and builds blocks for the updated asset data
of A and B
copied from TBC, to ensure that the updated asset data of A and B are recorded
on ABC; and
[0023] Step 3.3 Un-freeze account A and account B on ABC.
[0024] Further, after the transaction is completed, the exemplary method
further includes the
following steps:
[0025] Step 3.4 on TBC, the transaction data of A and B is marked as
"Expired", indicating
that the data is no longer available for trading. The TBC builds a block to
ensure that "outdated"
assets are recorded on TBC and can no longer be traded.
[0026] Step 3.5 Periodically review the TBC of "expired blocks", blocks
that have expired
for a long time do not need to be saved online and can be stored elsewhere
according to the rules
to make room for other online transactions to be processed at high speed.
[0027] In some embodiments, a Registration Center ABC is included in the
system. The
Registration Center ABC is the supervisory authority and when the settlement
clears, the
Registration Center ABC is notified.
[0028] In some embodiments, a Central Bank ABC can also be incorporated.
The Central
Bank ABC is for regulatory body. When the settlement clears, both the
Registration Center
ABC and the Central Bank ABC are notified.
[0029] In some other embodiments, on the asset blockchain or ABC, one
account includes a
general ledger and a few sub-ledgers, whereby each sub-ledger can be used only
for transactions
on one TBC, and each of the sub-ledger has a lock. The lock can be encrypted,
so that only the
associated TBC can unlock its sub-ledger. An account can involve multiple
transactions on
multiple TBCs.
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[0030]
As noted above, embodiments of the present invention implement a DVP
settlement
procedure based on blockchain technology. Embodiment of the present invention
utilize TBC
and/or ABC and associated algorithms to achieve timely and reliable settlement
of trading
activities.
[0031]
To better understand some aspects of exemplary embodiments of the present
invention presented above, and to better compare embodiments this invention to
other
conventional plans, a simple example is provided below.
100321
As noted above, TBC stands for Trading Blockchain and is similar to a trading
center. Transactions for all investors are completed on the TBC.
[0033]
ABC stands for Asset Blockchain and is similar to a bank's investment
accounts. The
ABC saves asset position information of all investors.
[0034]
"Position" is a commonly used term in the financial industry, often used in
financial,
securities, stocks, futures trading. Position refers to the number of funds
owned or borrowed by
investors.
100351
Either or both of the parties, A and B, can be banks or investors or other
organizations or entities.
100361
As noted above, in one embodiment of the present invention, a DVP settlement
method based on blockchain technology involves a Registration Center ABC and a
Central Bank
ABC and allows two parties A, B to trade securities. Both parties need to
check the asset position
from their respective asset blockchain ABC to ensure that it is satisfactory,
and then proceed to
trade on the TBC, and broadcast to ABC at the same time. At completion of the
settlement,
Registration Center ABC and Central Bank ABC will be notified.
[0037]
FIG. 1 is a schematic diagram illustrating a blockchain based method of DVP
settlement, in accordance with one embodiment of the present invention. The
status of account
102 for the first party (i.e., for investor A or party A) shows 1000 units of
bond-1 and money in
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the amount of 20.000 yuan. The status of account 104 for the second party
(i.e., for investor B or
party B) shows cash in the amount of 100,000. FIG. 1 further depicts a TBC
Exchange 104, a
Registration Center 106 and a Central Bank 108.
100381 The status of accounts prior to trading, as illustrated in FIG. 1,
is summarized as
follows:
[0039] Investor A: Bond-1: 1000; Funds: 20,000 yuan.
[0040] Investor B: Funds: 100,000 yuan
[0041] Investors A, B need to trade:
[0042] Investor A needs to sell bonds: Number of bond-1: 600, price: 100
yuan/piece
[0043] Investor B needs to buy bonds: Number of bond-1: 600, price: 100
yuan/piece
[0044] Investors A and B check the asset positions of the asset blockchain
ABC to ensure
that a sufficient amount of money or bonds exist in the respective accounts
before executing the
transaction on the trading blockchain TBC. At the same time, the transaction
information is
broadcast to the asset blockchain ABC, to complete the settlement. When the
settlement is
completed, the Registration Center ABC is notified ¨ i.e., receives
notification that the number of
bond-1 A sells to B is 600 at the price: 100/piece. The Central Bank ABC also
receives
notification that B needs to pay 60,000 to A, for the purchase of bonds.
[0045] The status of accounts after the trading settlement is completed is
as follows:
[0046] Investor A: Bond-1: 400; Funds: 80,000 yuan
[0047] Investor B: Bond-1: 600; Funds: 40,000 yuan
[0048] A blockchain-based DVP settlement method as described below. Before
the
transaction, trading blockchain TBC needs to perform the following steps:
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[0049] Step 1.1 on ABC, Freeze the accounts A and B which involved in the
transaction.
ABC will vote and build blocks to ensure the freezing of the assets of A and B
on ABC.
[0050] Step 1.2 Copy the frozen assets of the transaction parties A and B
to TBC by using
the blockchain encryption method.
[0051] Step 1.3 TBC will vote on the asset data of A and B sent by ABC to
all the nodes of
TBC, and build blocks to record that the asset comes to TBC.
[0052] Further, trading blockchain TBC performs the following steps during
the transaction:
[0053] Step 2.1 Both parties A and B conduct the transaction on the TBC;
[0054] Step 2.2 The TBC processes transaction voting and builds blocks for
the transaction
between A and B, guarantees the transaction is completed and recorded on the
TBC.
[0055] After the transaction is completed, the following steps are
performed:
[0056] Step 3.1 The TBC uses blockchain encryption to back up the updated
asset data to
ABC, for both account A and account B;
[0057] Step 3.2 The ABC votes and builds blocks for the updated asset data
of A and B
copied from TBC, to ensure that the updated asset data of A and B are recorded
on ABC;
[0058] Step 3.3 Un-freeze the accounts A and B on ABC.
[0059] Further, after the transaction is completed, the method further
includes the following
steps:
[0060] Step 3.4 on TBC, the Transaction data of A and B is marked as
"Expired", indicating
that the data is no longer available for trading. The TBC builds a block to
ensure that "outdated"
assets are recorded on TBC and can no longer be traded.
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[0061] Step 3.5 periodically review the TBC of "expired blocks", blocks
that have expired
for a long time do not need to be saved online and can be stored elsewhere
according to the rules
to make room for other online transactions to be processed at high speed.
[0062] Trading Blockchain TBC Operations
[0063] The TBC is only the channel or place or platform, used for trading
and settlement in
this embodiment. However it does not save the account information of both
parties. The TBC
uses the following method to process trades.
[0064] If both parties A and B are banks, i.e., Bank A and Bank B, then we
may assume
without loss of generality that only two banks A and B are participating in
TBC.
(00651 1) Bank A will freeze the assets sent to the TBC, and uses
blockchain encryption to
copy the asset data of the account involved in the trade from ABC to TBC. Bank
A will send the
data from all ABC nodes to all TBC nodes and then voting on the block will
occur. The TBC
builds the block and if the vote passes, ensures that the assets involved are
recorded on TBC.
[0066] 2) In the meantime, Bank B also does the same. The TBC votes and
builds the block
for the data that B sends to all nodes of TBC to ensure that the assets
involved are recorded on
TBC.
[0067] 3) Bank A and Bank B guarantee that the data uploaded is accurate.
If any
subsequent agencies such as a central bank or exchanges join, then the number
of nodes
increases, which will further increase the security of the underlying data.
Bank A and Bank B
trade on the TBC, and directly settle. The transaction results are stored on
the TBC. The TBC
nodes vote to build blocks, and the settlement is recorded;
[0068] 4) After the transaction is completed on TBC, TBC uses the method of
blockchain
encryption to copy the transaction data to the ABC ledger of Bank A, and all
the nodes on TBC
send the data to all the nodes on the ABC of Bank A, and then ABC votes to
build the block.
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This will ensure that the copied data is correct. Similarly, TBC copies the
transaction data to the
ABC ledger of Bank B.
100691 5) After each ABC ledger of A and B has been correctly updated. The
data on TBC
will be marked as "Expired", indicating that the data is no longer available
for trading, TBC vote
to build blocks, to ensure that the relevant data expired. Therefore, the TBC
data has a timed
lifespan, so that "TBC" is also called a "timed blockchain". Records stored on
TBC are
permanent and, by virtue of its implementation as a blockchain, cannot be
changed, but the data
is tradable only for a period of time as the transactions can be complex and
require multiple
transactions.
[0070] 6) Data expired on TBC is still valid verification data. The data
stored on TBC is
also encrypted, so that only the participating banks or units can see the
data.
[0071] Such a design requires membership network permissions to restrict
access to the
blockchain database. This customized access means that after the transaction,
the bank can
control the access rights to the blockchain, while the data of clients can
only be seen by the
relevant parties and regulators.
100721 TBC Design Advantages
[0073] 1) Optimization: if a TBC block has expired for a long time, there
is no need to save
it online. The TBC only needs to save the most active blocks. For example,
during a periodic
(e.g., monthly) clean up, inactive TBC blocks that expired for more than one
month can be
stored elsewhere to make room for other online transactions to be processed at
higher speed.
[0074] In addition, each type of transaction has its own TBC ¨ for example,
one TBC for
short-term activities such as various types of retail, and another for long-
term activities such as
smart contracts, to optimize data storage and performance. In addition, older
blocks can be
processed in the background, indexed, and reorganized and saved to back-end
databases for
faster data analysis or querying. The TBC needs to cross verify that its data
is consistent with its
associated ABC data, and indexing will speed up this process.
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[0075]
2) Regulation Enforcement: regulators participate in a TBC as a node and they
can
inspect the data and, upon request, they will have the right to vote. For
example, for high value
transactions, regulators have the right to stop trading if there is a
suspicion of a transaction.
Regulatory examination can be at any time during the transaction, such as
before the transaction,
during the transaction, or after the transaction.
[0076]
3) Confidentiality: This design will ensure that only authorized participants
see the
data that needs to be seen when needed. This design is consistent with
Windhover's privacy
principles whereby individuals can maintain their privacy while regulators can
legitimately
review and enforce compliance.
[0077]
4) Message: In addition to normal blockchain operations, prior to a
transaction the
TBC needs to copy data from the ABC, and replicate data back to ABC after the
transaction.
These messages can be stored in these blockchains, and if needed, this
blockchain message data
can be used for analysis and recovery.
[0078]
5) Scalability and Locking: Potentially, any financial institution (ABC) can
initiate a
TBC and share their transactions so that multiple exchanges can be formed. In
this case, the
speed of the transaction will improve, dividing the transactional workload
between multiple
exchanges associated with multiple trading venues.
[0079]
6) Locking: In the case of multiple trading places, a locking mechanism is
needed to
ensure the integrity of the transaction. For example, if Bank A participates
in two trading places,
TBC1 and TBC2, Bank A participates in both types of asset transactions at both
locations,
resulting in double spending. This problem can be solved by implementing a
lock on the specific
account on ABC of Bank A, and the amount of the assets to be traded will be
locked. The lock
will be released when the result of the relevant TBC is returned to Bank A's
ABC.
[0080]
Therefore, the ABC has at least two components: a general ledger and a sub-
ledger
(or risky asset account). An account can have one general ledger, and multiple
sub-ledgers. Each
sub-ledger can only be used for transactions on one TBC, and each sub-ledger
has a lock. The
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lock can be encrypted so that only the relevant TBC can release the lock. An
account can involve
multiple transactions in multiple trading venues.
[0081] Asset blockchain (ABC) operations
[0082] ABC stores financial institution account information or household
account
information. For example, multiple branch banks and third-party agents can
form an ABC. On
ABC, account information is shared. In this way, bank staff will have
difficulty tampering with
account information. ABC can have multiple designs, for example account
information can be
stored in a hashed 0(1) search, or in a Merkle Patricia Tree for easy access
to the latest data.
[0083] In addition to copy, lock and unlock operations, ABC also provides
scalability.
Financial institutions can optimize their support through powerful machine
differentiation by
putting the most active accounts on a particular blockchain.
100841 A bank can create a high-speed ABC for new accounts, with the
original ABC
referencing the old account data, in order to maintain the integrity of
account history. In addition,
to preserve high-speed blockchain processing, when the blockchain processing
size exceeds a
predetermined limit, it will be split into multiple sub-ABCs that are hosted
on different machines
to maintain a balanced workload.
[0085] At the completion of the blockchain transaction, that is, the
completion of settlement
and clearing, it only needs to notify the relevant authorities (e.g., registry
and bank) of the result
and updates. In order to interface with the existing system, the data also
need to be saved to
legacy databases.
[0086] The above described embodiment is only an exemplary of
implementation and in no
way limiting. A person of skill in the art will readily appreciate that
improvements upon the
embodiment described are possible.
[0087] Having thus described, by way of example only, embodiments of the
present
invention, it is to be understood that the invention as defined by the
appended claims is not to be
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limited by particular details set forth in the above description of exemplary
embodiments as
many variations and permutations are possible without departing from the scope
of the claims.
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