Members of the U.S. financial services sector published the findings of an industry proof-of-concept (PoC) that explored the feasibility of the Regulated Settlement Network (RSN). RSN is envisioned as an interoperable settlement network for multi-asset and cross-network transactions.
Building on the results of a previous PoC, the RSN PoC tested how simultaneous and coordinated, 24/7 settlement capabilities could be achieved for multi-asset and cross-network transactions involving tokenized central and commercial bank deposits, U.S. Treasury securities, and other regulated assets.
Currently, transfers of commercial bank deposits, wholesale central bank deposits, and securities such as U.S. Treasuries and investment grade (IG) debt are all settled on separate, siloed systems. This can lead to inefficiencies in transaction processing, increased operational risks, higher costs due to reconciliations across disparate systems, reduced transparency, and slower settlement times.
The RSN PoC set out to explore the capability of shared ledger technology to address how the above risks and inefficiencies could be reduced through the tokenization of regulated financial instruments, enabling 24/7 settlement capabilities on a common, regulated venue established under existing legal frameworks.
The study analyzed the business applicability, technical feasibility, and legal viability of leveraging shared ledger technology to settle multi-asset and cross-network transactions. The experiment was conducted in a test environment and used simulated data to conduct transactions denominated in U.S. dollars.
The PoC focused on the following two scenarios:
- Multi-Asset Delivery: Designing and implementing a financial market infrastructure (FMI) with the ability to settle transfers of tokenized U.S. Treasuries, IG bonds, central bank deposits, and commercial bank deposits to achieve precise settlement capabilities conditioned on pre-determined transaction characteristics.
- Cross-Network Interoperability: Successfully connecting the RSN FMI to multiple third-party networks through an interoperability solution that serves as a 24/7 common network to achieve cross-network synchronized settlement capabilities.
Key Findings
Business Findings: Multi-asset and cross-network settlement could be enhanced through a shared-ledger FMI that contains tokenized securities, central bank deposits, and commercial bank deposits where each institution operates its own partition. The network enabled a common settlement infrastructure that had 24/7, programmable, and precise settlement capabilities to allow financial institutions to optimize their collateral and liquidity positions. At the same time, the network alleviated challenges such as infrastructure fragmentation and uncertainty throughout the settlement process.
Technical Findings: The RSN infrastructure was able to support precise settlement capabilities across various asset classes within a shared-ledger FMI, demonstrating the scalability and versatility for modern financial transactions. The RSN successfully connected with other third-party networks through interoperability solutions enabling synchronized settlement.
Legal Findings: The legal workstream did not identify any issues that would prevent the creation of RSN as contemplated within the PoC under existing legal frameworks, although further analysis and engagement with regulators would be required before any final conclusions can be reached.
Please click to read the full business, technical, and legal reports.
Further Research
Based on the findings of the PoC, RSN participants will continue to drive discussions with the public sector on industry advocacy around specific regulatory gaps within the U.S. The Securities Industry and Financial Markets Association (SIFMA) intends to continue the dialogue around the concept of a shared-ledger FMI through its industry forums to identify opportunities to operationalize the RSN concept.
RSN Participants
SIFMA served as Program Manager for the RSN PoC. Working group members in this project include: Citi, J.P. Morgan, Mastercard, Swift, TD Bank N.A., U.S. Bank, USDF, Wells Fargo, Visa, and Zions Bancorp. The core technology was provided and hosted by Digital Asset, the network interlinking prototype for cross-network interoperability was provided by Swift, and legal services were provided by Sullivan & Cromwell LLP. Deloitte & Touche LLP provided advisory services to SIFMA.
The working group also engaged a group of U.S.-based project contributors, who provided subject matter expertise and explored the applicability of connecting certain external solutions and platforms to the RSN FMI. The group of project contributors includes: The Bank of New York Mellon, Broadridge, The Depository Trust & Clearing Corporation (DTCC), The International Swaps and Derivatives Association (ISDA), and Tassat Group, as well as the MITRE Corporation, which engaged as a non-commercial knowledge contributor.
The New York Innovation Center (NYIC) at the Federal Reserve Bank of New York was a technical observer in this PoC, and its role in this project was narrowly focused on observing the participants’ research and experimentation. The content of the reports, including any potential regulatory or supervisory frameworks for the RSN, and the Federal Reserve’s legal authority to participate in RSN or any similar arrangement, does not necessarily reflect the views of the Federal Reserve Bank of New York or any other parts of the Federal Reserve System.
Source: SIFMA
Kelly Mathieson, Chief Business Development Officer at Digital Asset, said in an email:
“The US RSN’s Proof of Concept prototyped 24/7 simultaneous Delivery-versus-Payment settlement with real-time transaction visibility. This project prioritized network interoperability, encompassing seamless interaction with the activities and value within other networks. The US RSN PoC demonstrated the use of tokenized securities and deposits in repo financing transactions, and the significant capital efficiency and liquidity benefits available with flexible, true simultaneous settlement.”
“At the heart of its success was a meticulous design stage, which shaped the technology infrastructure to deliver seamless simultaneous settlement. Solving for configuration, functional challenges, API changes, test case development, and execution, provides a road map for other initiatives to consider and replicate.”
“The US RSN showcases how interconnected, synchronized applications can eliminate complexity and enhance operational efficiency, redefining standards for modern financial markets. It is not just a technological milestone, but a collaborative effort that sets the stage for a unified digital market infrastructure. To avoid narrow proof-of-concept silos, we’ve prioritized broad integration and scalability from the outset.”
“By implementing true simultaneous settlement and leveraging real-time updates, the US RSN exemplifies how next-generation networks could operate. This innovative approach offers an opportunity to minimize settlement delays and reduce operational risks.”
