The Blockchain has certainly been the most talked about technology in the recent past, which was originally developed for digitizing and decentralizing the currency (bitcoin) by means of distributed ledger system. The technology is certainly not limited to digital currency, experts are now validating its application in areas such as shipping, supply chain, cross-border Trade Finance etc.
In December 2015, the Linux Foundation announced the creation of the Hyperledger Project. The objective of the project is to advance cross-industry collaboration by developing blockchains and distributed ledgers, with a particular focus on improving the performance and reliability of these systems.
Some of the early and prominent members from the financial sector of the initiative include J.P. Morgan, State Street, Wells Fargo, BNY Mellon etc
Can Blockchain technology be beneficial to the Trading Industry?
So, the imminent question in everyone’s mind right now is, can Blockchain technology be a game-changer for the stock broking industry? Well, if we look at the Trading lifecycle especially the Post-Trade settlement, the process is broadly classified into the following steps
- Comparing trade details of Buyer and Seller
- Approval of the transaction
- Change in records of ownership
- Transfer of securities and cash.
This process takes around 3 days to complete a transaction, primarily due to the role of intermediaries, operational trade clearance and regulatory processes.
The use of Blockchain can potentially bring down the time required for the settlement process from days to minutes. This can reduce the cost drastically as trades are settled by peer confirmation. In this case there is no need for a clearing house, auditors to verify trades and custodians to ensure a fund has the shares they say they hold. Essentially, this is cutting out the middleman in the back office which means less costs in record keeping and in turn less overall cost of transactions.
Recently, SEBI has appointed the Committee on Financial and Regulatory Technologies (CFRT), for exploring the possibilities that blockchain platform has to offer, which has been making waves in the areas of fundraising and post-trade settlement.
Japan’s Financial Services Agency has allowed the Tokyo Stock Exchange, to use blockchain as its core trading infrastructure. Japanese brokerages have reportedly initiated a consortium, which is dedicated to hoisting the process of blockchain technology adoption, the founding members were organizations like Rakuten Securities, SBI Securities, Daiwa securities and Nomu.
Back In 2015, Nasdaq has unveiled the use of its Nasdaq Linq blockchain ledger technology which allows private companies not listed on a stock exchange to digitally represent their share ownership. Linq and blockchain provider Chain have successfully completed and recorded private securities transactions.
About Market Simplified: Market Simplified is a thought leader in revolutionizing and digitizing products for financial institutions by continuously innovating and simplifying finance. We empower our customers with a cutting-edge digital experience that is highly personalized and enhanced for the end users with our ‘Experience Engineering’ platform driven by Analytics, AI, Machine Learning and Blockchain technologies. Our clientele includes industry leaders like OptionsXpress (Charles Schwab), Currenex (State Street), MB Trading, Maybank Kim Eng, Kotak Mahindra Bank, National Stock Exchange of India and many others across the globe.
About The Author: Shashidhar is currently working as a Manager-Key Alliances in Market Simplified India Ltd.