Swift Institute Report – Industry Collaboration Essential for Blockchain

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A fresh research published by the SWIFT Institute that looks at the practical application of Blockchain (or mutual distributed ledger) technologies in securities markets entitled ‘The Impact and Potential of Blockchain on the Securities Transaction Lifecycle, finds that while Blockchain offers the potential to transform the industry, fully achieving these benefits will require board level buy-in to a substantial commitment of time and resource, and active regulatory support for reform of business processes, with relatively little short term payoff. 

The paper, prepared by Alistair Milne, from Loughborough University’s School of Business and Economics, and Michael Mainelli from Z/Yen Group, is based on interviews and focus group meetings with individuals from 75 organisations working in technology and post-trade processing.

Mainelli explained:

“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. 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 allow the sharing of agreed and validated data with cryptographic control over access and updating rights. Their application could substantially reduce the $40bn per year or more of costs in global post-trade processing of securities trades and achieve substantial reductions of costs and risk in other financial services activities. However, there is a danger of building unrealistic expectations of the extent to which the technology on its own will address the underlying need for coordinated change of business processes both within and between firms. The principal finding of this research is that the full application of Blockchain will require substantial re-engineering of business processes across multiple securities market firms.

As a part of the research, the academics investigated three hypotheses:

  1. the appropriate access levels needed in a mutual distributed ledger used for global securities markets;
  2. whether change should be piecemeal or carried out at an industry level; and
  3. whether the benefits of this technology requires major changes to existing business processes.

In practice some benefits of mutual distributed ledgers can be achieved using relatively simpler approaches e.g. reducing the substantial costs of reconciliation between the two sides to a trade by recording data at the time of trade execution in a shared bilateral ledger. Other goals associated with Blockchain – the contraction of the settlement cycle to near-real time or the employment of so called ‘smart contracts’ to remove manual processing – do not require mutual distributed ledger technology at all.  

Milne added:

“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. 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.”

Please click here to download a full copy of the research paper. The PDF is also located in the Blockchain News Library with over 200 other Blockchain reports from 2015-2015 located here.

 

About Richard Kastelein

Founder of industry publication Blockchain News, partner at ICO services collective CryptoAsset Design Group (helped raise over $200m+), director of education company Blockchain Partners (Oracle Partner) and ICO event organiser at leading industry event  CryptoFinancing (first ICO event in Europe) – Richard Kastelein is an award-winning publisher, innovation executive and entrepreneur. He sits on the advisory boards of half a dozen Blockchain startups and has written over 1200 articles on Blockchain technology and startups at Blockchain News and has also published pioneering articles on ICOs in Harvard Business Review and Venturebeat.
 
Kastelein has spoken (keynotes & panels) on Blockchain technology in Amsterdam, Antwerp, Barcelona, Beijing, Brussels, Bucharest, Dubai, Eindhoven, Gdansk, Groningen, the Hague, Helsinki, London, Manchester, Minsk, Nairobi, Nanchang, San Mateo, Shanghai,Tel Aviv and Venice. His network is global and extensive.
 
He is a Canadian (Dutch/Irish/English/Métis) whose writing career has ranged from the Canadian Native Press (Arctic) to the Caribbean & Europe. He’s written occasionally for Harvard Business Review, Wired, Venturebeat, The Guardian and Virgin.com and his work and ideas have been translated into Dutch, Greek, Polish, German and French.
 
A journalist by trade, an entrepreneur and adventurer at heart, Kastelein’s professional career has ranged from political publishing to TV technology, boatbuilding to judging startups, skippering yachts to marketing and more as he’s travelled for nearly 30 years as a Canadian expatriate living around the world.
 
In his 20s, he sailed around the world on small yachts and wrote a series of travel articles called, “The Hitchhiker’s Guide to the Seas’ travelling by hitching rides on yachts (1989) in major travel and yachting publications. He currently lives in Groningen, Netherlands where he’s raising three teenage daughters with his wife and sailing partner, Wieke Beenen.

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