Application of Blockchain in Clearing and Settlement: A Case Study of NSE

International Journal of Research and Scientific Innovation (IJRSI) | Volume V, Issue VII, July 2018 | ISSN 2321–2705

Application of Blockchain in Clearing and Settlement: A Case Study of NSE

Surya Ann Thomas^#

^#M.Tech Student, Department of Mechanical Engineering, College of Engineering, Trivandrum, Kerala, India

Abstract- The secondary market is the market where previously issued financial instruments, such as bonds and stocks are bought and sold. It is where investors sell/buy to/from other investors. Transfer of security in secondary market includes execution, clearing and settlement processes. Execution is done in stock exchanges. Determination of obligation of securities is called clearing and all the processes that follow clearing up to the exchange of fund and securities are settlement. Clearing and settlement process in India (case of NSE) is using National Securities Clearing Corporation (NSCCL) for its working. The settlement time taken for completion of settlement is two working days from the trading day. The work develops a model of clearing and settlement(in NSE) using blockchain. The model minimizes the settlement time from two days to a few minutes. The proposed model has distributed ledger which uses smart contract in its working and easily transfers data throughout all the members present in network. All participants in network holds the same copy of ledger and addition of a new transaction to network has to be accepted by all members in network. The fast transfer of information between different entities reduces the settlement time.

Keywords- Blockchain, Clearing and settlement, NSCCL, Depository, Clearing bank.

I. INTRODUCTION

First trading of an asset occurs in the primary market. Then it happens in secondary market with the help of stock exchanges. The post-trade events occurring in stock exchanges include clearing and settlement activity. These two processes take place with the help of National Securities Clearing Corporation (NSCCL), clearing banks and depositories. Clearing is the process of determination of obligation of seller and buyer, which are determined using clearing banks and depositories. Settlement is the exchange of securities and funds with the help of clearing banks and depositories. In the NSE, clearing is occurring on the first day after trading process and settlement is occurring on the second day after trading. The amount of time taken in the present case can cause delay in exchange of funds and securities.

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