Paxos Securities Settlement Company has achieved a significant milestone, becoming only the 8th clearing agency / central securities depository (CSD) in the United States. The DLT-based clearing agency will launch in March 2027 at the earliest, with the registration on an 18 month temporary basis, a detail omitted from Paxos’s announcement.
Under the first Trump administration Paxos received a no action letter for a similar DLT-based service, attracting high profile participants including ABN Amro, Bank of America, Nomura’s Instinet and Societe Generale. However, the Biden administration was less keen on distributed ledger technology, so when Paxos sought to renew the exemption, the SEC did not act on it.
One might expect some overlap with the DTC no action letter for tokenization, and that Paxos might settle those transactions. However, that’s not the case, because its clearing agency application was filed some time ago, and aims to use DLT to settle conventional book-entry securities. Paxos does not act as a central counterparty (CCP), but rather supports bilateral delivery versus payment (DvP) settlement between counterparties by tokenizing both the securities and the cash on the private permissioned Paxos ledger. Bilateral netting will also be supported during the temporary period, with enhanced or multilateral netting planned in future.
Paxos portrays the benefits of its solution as providing significant flexibility in settlement timing, and almost instant availability of securities and funds post settlement. Additionally, because Paxos is not acting as a CCP, margin requirements are lower. As a result, Paxos highlights that there is no counterparty exposure to Paxos, although Paxos Securities Settlement Company is responsible for safeguarding both securities and cash.
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