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LONDON, Dec 20 (IFR) - The first pilot for a new London bullion settlement service, Euroclear Bankchain, has been completed by the international securities depository and financial technology firm Paxos.
The service, which combines Euroclear's settlement activities with Paxos' blockchain platform, is one of a wide range of planned product launches that aim to minimise risk, drive efficiency and reduce balance sheet constraints for gold market participants.
The pilot saw more than 600 over-the-counter test bullion trades settled over a two-week period. Participants included Scotiabank, Societe Generale, Citigroup, MKS PAMP Group and INTL FCStone.
Settlement of unallocated gold is a capital-intensive process and the platform aims to reduce capital charges for market participants through instant settlement and simultaneous delivery versus payment.
"This is a real first step in bringing a new settlement capability to the London bullion market that will help lower risk and simplify the post-trade process," said Angus Scott, director, product strategy and innovation at Euroclear."
Euroclear and Paxos will integrate feedback from the pilot in the coming months. The next market simulation is planned for early next year while the service is scheduled to go live during 2017.
"The pilot has been very useful in helping us further refine the Bankchain platform," said Seth Phillips, Bankchain product director at Paxos. "The level of engagement from market participants was extensive and they were excited by settlements enabled on a real blockchain for the first time and to see how quickly their feedback could be incorporated into the platform."
Earlier this month, Royal Mint teamed up with CME Group to create a new platform for investors to digitally trade physical gold. RMG contracts are backed by gold stored at the Royal Mint's bullion vault storage facility, while a digital record of ownership is supported by blockchain technology. The contracts are set to begin trading in 2017.
IEX Group, which recently began operating its newly approved stock exchange, is planning a spinoff gold processing and settlement venture, TradeWind Markets.
The London Bullion Association is also planning a gold trading platform and trade repository, while the London Metal Exchange will launch gold spot and futures contracts in 2017. (Reporting by Helen Bartholomew)