Unlock – Blockchain will revolutionize Stock Exchanges

Today’s investor relies on a traditional system of buying, selling and accounting for transactions that are old enough to be called ossified. The system generates considerable costs and adds to the time needed to close transactions. This is because trading in financial assets requires multiple entities arranged in a complex web of intermediaries, settlement systems and business partners.

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Summary of my article in Unlock – link.

Norbert Biedrzycki Head of Services CEE at Microsoft, recently wrote a piece in datadriven investor about how blockchain will transform the stock market. According to Norbert Blockchain can be used by the world’s stock exchanges especially since the govern trades in financial assets has changed little over the past two or three centuries.

He states, “ Today’s investor relies on a traditional system of buying, selling and accounting for transactions that are old enough to be called ossified. The system generates considerable costs and adds to the time needed to close transactions. This is because trading in financial assets requires multiple entities arranged in a complex web of intermediaries, settlement systems and business partners. Whether they are investors, brokers, depositaries, stock exchange management or central supervisory bodies, all actors taking part in asset trading – buying, selling, or transferring – are obliged to generate messages, receive authorizations, and continuously update transaction status records.”

As such blockchain comes in to change transaction processes such as as issuing securities, trading, clearing, and settlements could be handled swiftly and without much friction with the use of blockchain’s distributed ledger. 

The fiscal crisis of 2008, triggered (in part) by the proliferation of opaque financial instruments, called into question the transparency of the existing global model. The crash we experienced a decade ago laid bare the need to search for alternative solutions that would help build a more transparent, tamper-proof system. What emerged in the wake of the crash were new government regulations that today, in the U.S., are being rolled back.

Given its properties, he thinks that blockchain would give hope for a stock exchange of the future. In a blockchain-based exchange, murky transactions would become a thing of the past. Smart contracts could dispel doubts as to whether settlements have been made correctly. Supervisory mechanisms – today indispensable, albeit inefficient – would no longer be needed.

He adds, “trust would be a given. Blockchain hits the largest trading floors. The investment market is on the cutting edge of early blockchain deployments. For instance, Nasdaq management has been looking at blockchain for three years. As early as May 2015, the private share-trading platform, Linq, was launched to enable unlisted companies to represent their shares digitally. Last year, Nasdaq Stockholm and the Swedish bank SEB started testing the use of blockchain to register all transactions in real time. Blockchain-based solutions have undergone rigorous testing on the Nasdaq Tallinn exchange. The premise of the project is that corporate shareholders would be able to vote during investor meetings or digitally transfer their voting rights to a proxy.”

In addition  The London Stock Exchange Group, in cooperation with IBM, has begun testing a blockchain-based platform to fully digitalize trades in the shares of small and medium-sized enterprises. The tests are being carried out by the Italian operator of LSEG, Borsa Italiana. And the Australian Securities Exchange plans to finish its two-year-long process this year to develop a system that will increase operations transparency and enhance investor security.

His advice to financial institutions is that above all they need to be certain that their customers’ money is secure.  It is therefore unsurprising that even given the examples related, capital markets are still slow to embrace blockchain. To see genuine progress, certain conditions must be met, primary among them the establishment of the most stringent security standards for the block system. Blockchain implementations require proper laws. Unfortunately, right now, the legislative environment everywhere is somewhat polarized and inconsistent.

In addition the technology continues to be limited. Work is underway to boost its capacity and reduce transaction costs. On the New York Stock Exchange, there are around three billion trades on a normal day. The development of new platforms to handle such volume is likely to prove complicated and time-consuming. And that translates into costs.

Eventually he believes that stock markets will embrace blockchain.

Link to the article – link

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9 comments

  1. ZoraBora

    I’m not big on legal questions, but I think doing on NASDAQ what we are doing here would be a financial crime. And the exchanges will have to monitor it that people are not trading with themselves. Otherwise the exchanges will get blacklisted.

  2. CaffD

    I believe the worst is not even the drone’s nature of “follow any orders however evil”, but how easy it will be to start a war. Nowadays (almost) every government faces a strong opposition from the public opinion whenever it’s about to send someone’s daughters and sons to the battlefield. So it’s a decision that must be weighted very carefully (with a view at next elections). What about when (at least at first and/or from one’s side) there’s no human lives involved? There won’t be a moral brake!

    • ZoraBora

      Several U.S. firms seeking regulatory approval to launch a bitcoin exchange-traded fund (ETF), has estimated that 95 percent of bitcoin trading volumes are faked and only 10 exchanges publish reliable data about volumes on their platforms, without inflated numbers.

  3. Check Batin

    As the saying goes, “living and dead … in equal parts” till the box is opened. Good summary

    • ZoraBora

      I think FATF will shut it down quickly: the cryptocurrency exchanges will be regulated like NASDAQ and pumping fake volumes will be banned.