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Blockchain can transform securities markets

Anuradha Shukla | May 18, 2016
Report by SWIFT Institute says benefits can be achieved with industry collaboration.

Blockchain offers the potential to transform the securities markets, according to a new research published by the SWIFT Institute.

However, industry collaboration is required for the successful application of blockchain in the industry.

Complete achievements of these benefits will require board level buy-in to a substantial commitment of time and resource.

In addition, it will require active regulatory support for reform of business processes, with relatively little short term payoff.

"Strong claims are now being made in financial services and the media about the potential of mutual distributed ledgers to reduce costs and risks enormously, some suggesting that this technology will completely transform financial market operations, said co-author of the paper, Michael Mainelli from Z/Yen Group. "Deep understanding of the technology, however, lags well behind the hype amongst practitioners, policy makers and industry commentators alike. Blockchain technology seems to promise major benefits for the industry, but few can say exactly how or why."

Mutual distributed ledgers

Mutual distributed ledgers enable the sharing of agreed and validated data with cryptographic control over access and updating rights.

The report claims their application could significantly reduce the US $40 billion per year or more of costs in global post-trade processing of securities trades.

Moreover, this can also achieve significant reductions of costs and risk in other financial services activities.

SWIFT Institute warns of unrealistic expectations of this technology as it is not proven how it will address the underlying need for co-ordinated change of business processes both within and between firms.

Full application of blockchain will require substantial re-engineering of business processes across multiple securities market firms.

"The challenge of using mutual distributed ledgers in securities markets is not just in demonstrating technological feasibility, but in achieving the necessary industry coordination to reengineer business processes across securities firms," added co-author of the report, Alistair Milne, from Loughborough University's School of Business. "Moving to a blockchain model provides an opportunity for the industry to harmonise business processes, and it may also address the much long-neglected inefficiencies in post-trade processing. However, to realise the full benefits of blockchain will require buy-in from the buy-side, sell-side and regulators."

 

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