The Securities Settlement System and Distributed Ledger Technology

Distributed ledger technology (DLT) is attracting wide attention because of the benefits it provides such as fault tolerance and cost reductions. When introducing DLT in securities transactions, its relationship with the Act on Book-Entry Transfer of Corporate Bonds and Shares, which regulates the transfer of paperless securities, should be examined to ensure the stability of securities settlement. The Bank of Japan's Institute for Monetary and Economic Studies commissioned a series of workshops on the use of DLT in securities settlement and released a report on the findings in 2017 (available in Japanese only). The report presents possible interpretations of current law, which stipulates a multi-layered settlement structure, considering the fault tolerance characteristics of DLT, which enables network participants to share information. Furthermore, the report considers the future shape of the securities settlement system with DLT if legal reforms are taken into account.