Moscow, 29 April 2016, National Settlement Depository, Russia’s central securities depository, has successfully finished developing and testing an e-proxy voting system running on a distributed ledger (blockchain technology). The prototype is based on the NXT distributed cryptographic platform, and uses ISO 20022 international standard for messaging. NSD has been working on the project together with DSX Technologies. The project’s open-source code is available on GitHub.
E-proxy voting is an innovative technology for corporate actions processing that provides for electronic interaction between securities holders and issuers for the purpose of exchanging information and documents.
E-proxy technology was introduced at NSD in August 2014. In April 2015, NSD upgraded the technology, bringing it in line with the global ISO standards. In April 2016, a blockchain-based prototype of e-proxy voting successfully passed the testing related to bondholder meetings.
Eddie Astanin, Chairman of the Executive Board at NSD, says: “Over the past 10 years, the global financial infrastructure has faced the challenges that make us review the approaches to reliability, security and performance of information systems. It is obvious for us that ignoring the rapid development of FinTech and upgrading the outdated platforms could hinder the stable development of the Russian financial system. Fortunately, Russian specialists are among the most experienced in the global FinTech industry, and we have proven this fact by implementing a fully functional prototype of e-proxy voting system based on blockchain. After testing blockchain for bondholder meetings, we can extend the use of this technology to other business areas of NSD.”
How it Works
The existing e-proxy voting solution enables cascade messaging through a chain of nominee accounts, from the issuer to the securities holder and back. NSD manages the database for the chain, ensuring that all voting instructions are properly submitted and accounted for. The blockchain-based e-proxy voting prototype enters the instructions into a distributed database which is accessible to all the members of the chain at the same time.
Sergey Putyatinskiy, IT Director at NSD, explains: “After our work group analyzed the use of blockchain in several areas of NSD activities, we opted for the automation of the voting process at the annual securities holders meetings. Over the period of four months, we managed to develop a working prototype of the blockchain-based e-proxy voting system that has no analogues in the world. During the testing process, we reached a submission speed of 80 voting instructions per second. We are currently aiming to increase the system’s capacity and to enable the support of new voting types. Our next step would be to subject our new prototype to legal and cryptographic expert evaluation, which will give us a more definite idea whether the prototype is suited for real voting.”
The distributed database for e-proxy voting contains a full update history, which is protected from tampering by cryptographic security. All the members of the network (nominees and NSD) keep copies of the database, and in case of an inspection, the regulator or the auditor gets full access to all the necessary information simply by joining the network. Once data has been entered into the blockchain, it cannot be falsified: the system records all changes that have been made in the voting procedure or in the vote results stored in the distributed database. The record is then distributed among all the network members, and can easily be traced.
A securities holder votes via their personal account on the nominee’s website using their digital signature. The nominee then enters the securities holder’s vote into the blockchain, also accompanying it by a digital signature. To confirm that the vote has been received, the nominee provides the securities holder with the identification number that has been assigned to their vote in the distributed database. Afterwards, the record of the vote is passed on from one nominee to another until it reaches the central securities depository. As the voting is completed, the system calculates the results automatically, and NSD publishes them in the blockchain, using its digital signature. The use of cryptography ensures the integrity of the voting process during every stage.
National Settlement Depository (NSD) is the central securities depository* of the Russian Federation, a part of the Moscow Exchange Group. NSD was founded on 27 June 1996. On 31 January 2016, the value of securities under custody amounted to RUB 31.6 trillion. The Bank of Russia recognized NSD the systemically important central securities depository, settlement depository and repository. The NSD payment system has a status of the systemically and nationally important system.
NSD offers a wide range of services to its clients including settlement and depository services, registration of the OTC transactions (repository services), information services and collateral management services. As Russia’s national numbering agency and the substitute numbering agency for the CIS, NSD is authorized to assign the international ISIN and CFI codes. NSD acts as a Local Operating Unit (LOU) allowing to assign Legal Entity Identifiers (LEIs) to the company’s clients. The Bank of Russia has assigned to NSD a status of an operator of NSD Payment System (registered name).
NSD conducts all exchange settlements and a major part of OTC settlements, services Russian and foreign securities as central securities depository. Currently, NSD has accounts with central securities depositories and international central securities depositories of eight countries, as well as correspondent accounts with major foreign and Russian banks. NSD services securities issued by the companies representing more than 40 countries. The international rating agency Thomas Murray has assigned NSD an AA- rating as a central securities depository.
For additional information about NSD please visit www.nsd.ru.
*The status of the central securities depository was assigned to NSD by the Russian Federal Financial Markets Services’ order #12-2761/PZ-I dated 6 November 2012. NSD holds professional securities market participant license #177-12042-000100 for depository operations issued by the Central Bank of the Russian Federation on 19 February 2009, license #3294 for bank operations issued by the Central Bank of the Russian Federation on 26 July 2012 and license #077-00004-000010 for clearing activities issued by the Central Bank of the Russian Federation on 20 December 2012.