Append-Only Ledgers for Real-Time Securities Settlement

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Solution Overview

Problem

The traditional settlement process for securities trades is costly, time-consuming, and prone to errors, with many trades being disputed and never settled due to the lengthy three-day settlement period, which increases risks and costs for the financial industry.

Innovation Solution

Implementing a real-time gross settlement system using cryptographic hashes and append-only ledgers, where trades are verified through cryptographically-signed instructions and processed in a distributed ledger system, allowing for immediate audit and validation of transactions, thereby eliminating the need for manual review and dispute resolution.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Reliability

If traditional three-day settlement process is used, then manual review and dispute resolution can be performed, but settlement time is extended and costs increase

Engineering Contradiction:

Improvetrade validationVSAvoidsettlement time

Core Design Contradiction:

ReliabilityVSLoss of time

Solution Approach 1:

The patent replaces manual mechanical review processes with cryptographic verification. Cryptographically-signed instructions and hash-based ledgers automatically validate trades, eliminating the need for manual review while maintaining reliability. This substitution of cryptographic automation for manual processes resolves the contradiction by providing both fast validation and settlement.

Inventive Principle:

Principle #28Mechanics substitution (Replace mechanical system)

Solution Approach 2:

The settlement system performs self-validation through cryptographic proofs embedded in the ledger. Each trade contains cryptographic signatures that automatically verify authenticity and authorization without external intervention. This self-service mechanism enables immediate settlement while ensuring trade validity, resolving the time-reliability contradiction.

Inventive Principle:

Principle #25Self-service

2Reliability

If traditional settlement process is used, then dispute resolution can be performed manually, but errors increase and costs rise

Engineering Contradiction:

Improvesettlement accuracyVSAvoidsettlement errors

Core Design Contradiction:

ReliabilityVSObject-generated harmful factors

Solution Approach 1:

The patent replaces error-prone manual processes with cryptographic verification systems. Cryptographic signatures and hash-based ledgers provide automated, accurate validation that eliminates manual errors while maintaining the ability to resolve disputes through cryptographic proof. This substitution improves reliability and reduces errors simultaneously.

Inventive Principle:

Principle #28Mechanics substitution (Replace mechanical system)

Solution Approach 2:

The system provides immediate cryptographic feedback on trade validity through signature verification and hash validation. This automated feedback mechanism instantly identifies invalid trades and prevents settlement errors, while maintaining a complete audit trail for dispute resolution. The feedback loop ensures high accuracy without manual intervention.

Inventive Principle:

Principle #23Feedback

3Productivity

If real-time settlement is implemented, then settlement speed increases, but system complexity increases

Engineering Contradiction:

Improvesettlement speedVSAvoidledger system complexity

Core Design Contradiction:

ProductivityVSDevice complexity

Solution Approach 1:

The patent extracts cryptographic verification logic from complex settlement systems and embeds it directly in trade instructions and ledgers. By taking out the validation function and embedding cryptographic proofs in the data structure itself, the system achieves real-time settlement without requiring complex external verification infrastructure. This extraction simplifies the overall system while enabling fast settlement.

Inventive Principle:

Principle #2Taking out (Extraction)

Solution Approach 2:

The system performs preliminary cryptographic validation by embedding signed instructions and hash references in trade data before settlement. This preliminary action of pre-verification through cryptographic signatures enables immediate settlement without subsequent complex validation steps, achieving high speed while managing complexity through advance preparation.

Inventive Principle:

Principle #10Preliminary action

4Measurement precision

If cryptographic verification is used, then trade validation accuracy improves, but processing overhead increases

Engineering Contradiction:

Improvevalidation accuracyVSAvoidprocessing overhead

Core Design Contradiction:

Measurement precisionVSUse of energy by moving object

Solution Approach 1:

The patent applies partial cryptographic verification by using hash-based ledgers that store only essential validation data rather than complete trade records. This partial action approach provides sufficient validation accuracy for settlement while reducing processing overhead by storing minimal cryptographic proofs rather than full transaction details. The selective use of cryptographic verification balances accuracy and efficiency.

Inventive Principle:

Principle #16Partial or excessive action

Data Source

PatentUS20220351290A1Settlement of securities trades using append only ledgers

Publication Date: 2022.11.03 DOMUS TOWER INC

AI summary

Various of the disclosed embodiments concern systems and methods for expediting the settlement of securities traded on an exchange. A settlement system can generate electronic records of financial transactions by bundling a trade report, clearing instructions, etc., into a cryptographic ledger. Current cryptographic ledgers do not handle transactions at the rate which securities are traded. In order to improve rate processing for cryptographic ledgers sharded transaction trees are used.