09 May 2016

The Impact and Potential of the Blockchain on the Securities Transaction Lifecycle

Industry collaboration is necessary for the successful application of blockchain in securities markets.

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 reengineering of business processes across multiple securities market firms.

The paper, entitled “The Impact and Potential of Blockchain on the Securities Transaction Lifecycle”, investigates the practical application of blockchain (or mutual distributed ledger) technologies in securities markets. Based on interviews and focus group meetings with individuals from 75 organisations working in technology and post-trade processing, the paper 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.

by Alistair Milne, Michael Mainelli

Institution(s):
  • Gresham College
  • Loughborough University School of Business

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