GBST has released the findings of its initial study into Blockchain technologies for international capital markets participants. Tracking the ongoing benefits of digital disruption, the “Four scenarios for Blockchain in Capital Markets” discussion paper identifies the importance of distributed ledger technology and smart contracts as they potentially reduce inefficiencies and costs, as well as create new market infrastructure capable of challenging traditional capital markets operators.
Nick Clarke, Executive Manager – Institutional Product Management, GBST said:
“At one end of the spectrum, Blockchain technologies are being proposed to completely rebuild capital markets infrastructure and at the other end, Blockchain will simply replace legacy technology in use by clearing houses and CSDs. We place these opportunities into context and analyse what these outcomes could mean for current market participants.
With a recent push by global consortiums to establish common standards for Blockchain technology and further encourage its use across the wider financial services industry, the discussion paper is well timed for capital markets participants.
“In each case, features such as agreed consensus, redundancy and smart contracts will have varying benefits for our industry and need to be weighed against the cost of implementing each model. Collaboration with regulators and industry agreement on operational models will be key.”
With a reputation for innovation, GBST has been in active discussion with its global clients regarding use case scenarios for Blockchain. Its research has shortlisted four varied scenarios including technology replacement; the extensible ledger; a new global clearing and settlement infrastructure and peer-to-peer finance — or what it has termed in the discussion paper as ‘Uber Finance’. Each scenario outlines the potential advantages and limitations of the introduction of distributed ledger technology, highlighting the potential benefits and limitations.
“We believe that these varying scenarios for the introduction of distributed ledger technology into capital markets will provide participants with an insight into both the benefits and limitations that particular approaches will offer. It should certainly have market participants thinking about the potential impact of distributed ledger technology on their firm’s operations.”
The discussion paper acknowledged that participants will need internal accounting and client servicing systems into the medium term, possibly acting as a firm’s “digital wallet” but it is longer term that the study acknowledges more focus on the peer-to-peer transacting model will have the potential to reshape participant’s operations.
The “Four scenarios for Blockchain in Capital Markets” discussion paper was developed in conjunction with Data61, Australia’s digital innovation powerhouse and CSIRO entity. A copy of the report is also available here: bit.ly/1ZaF1HB
A summary of each scenario is outlined below:
- Technology replacement – represents a limited disruption introduction of the technology by incumbent market operators.
- The extensible ledger – an extension of technology replacement, this scenario could see the formation of a ‘Smart Ledger’.
- A new global clearing and settlement infrastructure – a global consortium designed to solve clearing and settlement issues in domains currently poorly served by existing infrastructure or facing poor value for money.
- Global peer-to-peer network – the distributed ledger technology creates a network capable of replacing the traditional capital markets systems in the longer term.