Netting & Settlement

Automated bilateral netting and batch settlement mechanics that reduce capital requirements and streamline securities lending operations on Canton.

Automated Netting

Netting is the process of consolidating multiple bilateral obligations between two parties into a single net position. In traditional securities lending, netting is performed manually by operations teams, often on a T+1 or T+2 basis, creating settlement risk and tying up excess capital.

Dualis automates netting entirely on-chain. When two participants hold offsetting positions — for example, Party A has lent AAPL shares to Party B, and Party B has separately lent MSFT shares to Party A — the protocol identifies these bilateral exposures and computes net obligations in real time.

How Netting Works

The Dualis netting engine operates in three phases:

1. Exposure Aggregation — The engine scans all active deal contracts between a given pair of counterparties. For each security, it calculates the gross lend and borrow positions held by each party, including accrued but unsettled fees.
2. Net Calculation — For each security, the engine computes the net obligation: if Party A has lent 1,000 shares and borrowed 400 shares of the same instrument from Party B, the net obligation is 600 shares from A to B. Fee obligations are similarly netted to a single cash flow direction.
3. Netting Proposal — The engine generates a netting proposal contract on Canton. Both counterparties must approve the proposal (via DAML choice exercise) before the netting is executed. Once both parties approve, the individual deal contracts are archived and replaced with a single net position contract.

Settlement Mechanics on Canton

Canton Network provides the ideal substrate for securities settlement due to its atomic transaction model and privacy guarantees. All settlement on Dualis leverages these properties:

• Atomic execution — Every settlement transaction is all-or-nothing. The security transfer, collateral release, and fee distribution all occur in a single Canton transaction. There are no partial settlements or failed legs.
• Instant finality — Settlement is confirmed as soon as the Canton transaction is committed. There is no pending state, no clearing queue, and no reliance on end-of-day batch processes.
• Privacy preservation — Canton's sub-transaction privacy model ensures that only the counterparties involved in a deal can see the deal terms. Other network participants cannot observe the securities, quantities, or fees involved.
• Regulatory auditability — Despite the privacy model, authorised regulators can be granted observer rights on specific contracts, enabling supervisory oversight without compromising participant confidentiality.

Batch Processing

While individual deals settle instantly upon termination, Dualis also supports batch processing for participants managing large portfolios with high deal volumes. Batch processing is particularly useful for:

• End-of-day netting cycles — Participants can schedule daily netting runs that aggregate all bilateral positions accumulated during the trading day and settle them in a single batch.
• Fee settlements — Rather than settling fees on each deal individually, participants can opt for batch fee settlement on a configurable schedule (daily, weekly, or monthly).
• Collateral rebalancing — Batch processing enables efficient rebalancing of collateral across multiple active deals, optimising capital allocation without triggering individual margin calls.

Batch operations are submitted as a single Canton transaction containing multiple DAML choice exercises. The atomic nature of Canton transactions guarantees that either all operations in the batch succeed, or none do.

Netting Frequency and Configuration

Participants can configure their netting preferences at the organisational level: