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Japan Securities Finance Co. (JSF) and the Graduate School of Engineering of The University of Tokyo have released a collaborative research report into the use of distributed ledger technology (DLT) - which the report uses synonymously with blockchain - in securities finance transactions.
From April 2021 to March 2023, the two parties conducted empirical research into the feasibility of using the technology to facilitate transactions involving tokenised securities, collateral in repo transactions and securities lending and borrowing transactions.
The research evaluated three points: the feasibility of using DLT in securities finance transactions, the system performance when processing transactions in market-wide scale and the impacts of collateralised securities diversification and threshold setting for margin calls on net credit amount and required liquidity, including the evaluation upon market turmoil.
Among its primary findings, the report concluded that DLT is smoothly implemented to securities finance transactions and could reduce credit risk and economise liquidity.
The report found that the use of DLT can reduce settlement risks, especially for transactions denominated in different currencies.
It also finds that DLT can streamline transactions through the automation of margin calls and settlement, therefore reducing administrative workloads, as well as provide more utility to low-liquidity assets.
In managing the research process, JSF took charge of conceptualisation and scheme planning, research of related market practices, and compilation of the final report, while the University of Tokyo was responsible for data analysis and reviewing relevant technologies.
