Live Blockchain Platforms in 2017?11.18.2016
Global capital markets should see the first live blockchain-based platforms in the second half of 2017, according to industry experts.
Blockchain still is deeply in its development stage, according to Richard Johnson, vice president, market structure & technology at industry analysis firm Greenwich Associates, during a MarketTalks Facebook Live conversation at the Nasdaq MarketSite in Times Square.
“A lot of companies are doing proofs-of-concepts,” said Johnson. “We will likely see it move into production in late 2017.”
Banks are one of the biggest proponents for adopting the nascent technology as a way to remediate some of the capital constraints they face due to various regulatory regimes, he added.
“They are looking anywhere in the bank to reduce costs,” said Johnson. “Streamlining the settlement process and reducing settlement times by using blockchain would free up a lot of capital. Not only internal capital but the cost of capital that they have when they wait up to three days for equities trades and up to 20 days for syndicated loan trades to settle.”
Trade settlement likely will be one of the first processes to benefit from the new technology, agreed Fredrik Voss, vice president of blockchain strategy at Nasdaq.
“Post-trade plumbing is elaborate, cumbersome, and complex,” he noted. “The technology potentially will enable those systems to operate more efficiently and enable new businesses.”
One potential offering could be selecting the durations of settlement cycles. “Would you want it faster or slower?” asked Voss. “Sometimes you want to have real-time settlements.”
Such optional offerings could lead to more and creative services for the capital markets, he added. “With these blockchain networks, you potentially could have much more of a global reach.”
But in the near term, the industry is specifically looking at implementing blockchain-based technology within the OTC derivatives markets and their longer settlement cycles, as a potential source of savings, said Johnson.
Further out, Voss views the technology lending itself to keeping track of who possesses assets at any particular time.
“It’s really useful for any financial asset, we believe,” said Voss.
Will blockchain technology eventually make cash and obsolete concept?
It’s not as radical a thought as one would think, according to Johnson. “We are seeing some governments looking into digitalizing their fiat currency on to a blockchain,” he said.
The central banks of the UK, Canada, and Barbados each have made their own investigations into possible adoption.
“It is not going to happen next year, but maybe down the line,” said Johnson. “I think it will make a lot of sense maybe 10 years down the road. It would make sense to have federal government- and central bank-backed currency.”
In the meantime, Voss expects the industry to continue its blockchain-based proof-of-concepts into next year followed by the initial production implementations, which will accelerate the technology’s adoption.
“After that, if we discover issues that we didn’t expect then blockchains adoption could be slower,” he said. “We will be in a better position to answer the timeline questions in 12 to 18 months.”
More on Blockchain:
- Private Blockchain May be the Answer to Capital Markets’ Internal Reconciliation Problems – TABB Group Report
- ConsenSys, Synechron and BlockApps Collaborate on Financial Services Blockchain Applications
- Fed’s Brainard Sees Blockchain as Revolutionary, but Still to Prove Itself
Financial institutions can shorten the lifecycle of blockchain projects to just a few weeks.
FINRA membership marks further momentum in WisdomTree Securities' digital strategy.
Blockchain technology can be compatible with the existing federal securities law framework.
The Australian exchange apologised for the disruption experienced in relation to project.
Near real-time settlement and risk management will be incorporated into traditional finance.