Blockchain has been touted as a way of revolutionising capital markets.
Today we are seeing blockchain innovation, or Distributed Ledger Technology (DLT), gathering momentum, with the first steps towards its implementation being taken across the Asia Pacific region.
The technology has been lauded as a way of addressing the inherent structural inefficiencies of markets, as well as providing efficient and adaptable security measures. Within its post-trade asset servicing solutions business, BNP Paribas has made significant investments in joint ventures with fintechs involved in blockchain, such as taking a stake in Digital Asset Holdings at the start of 2016.
In Australia, a decision was made that took some market watchers by surprise; the Australian Securities Exchange (ASX) announced in December 2017 the replacement of its Clearing House Electronic Sub-register System (CHESS) with a DLT solution. BNP Paribas has been working with the ASX on this venture; they are planning to switch on the world’s first industrial-scale DLT by April 2021.
In Asia, the Hong Kong Exchange announced plans to develop a blockchain platform for post-trade allocation and processing of trades for its Stock Connect programme with mainland China. In addition, several Stock Exchanges in South East Asia, including Singapore, are reviewing DLTs capabilities and its application.
In continental Europe, the Euronext exchange will move the SME market to a new blockchain market infrastructure. This project is hosted in a joint venture between the exchange and large European banks.
But there are sceptics.
According to Mr. Wootton, winning over the sceptics comes down to demonstrating that the technology is so much more than just a settlement platform: “There are a few players who are yet to catch up to the enormous potential of the technology and its impact beyond the settlement process.
“Naturally we are seeing early adopters and others who are taking a conservative approach, but once the market sees the potential of the value-added services and those proof-of-concepts move into production, organisations will also realise it [DLT] is so much more than a settlement platform.”
The uncertainty associated with revolutionary technology, particularly for organisations trying to understand the costs and impacts of these changes, is an issue that the industry is grappling with.
Mr Wootton said that could be countered by organisations spending time to further understand the technology and its flexibility, in turn highlighting its security benefits.
“To truly understand the power of the technology you need to get close, have a play around –and see what it’s capable of” he said.
“In addition, in our current environment where every organisation is concerned about cyber-security, DLT can be a part of the longer term security solution.”
However, with any new technology comes regulation and DLT is a challenging area in this regard. The ASX engaged [local regulators] early in the review process, and as a result we have seen an increase in DLT specialists looking into the technology aspects of such solutions.
For Mr Wootton, any questions over the implementation of blockchain comes down to one simple fact; “There are many uses of this technology that will likely see winners and losers in the long run. Those that are able to adapt and bring forward new products and offerings are well placed to meet their clients’ wants and needs.”
Digital technologies are changing the way we work. BNP Paribas sees blockchain technology as a positive move and has been evaluating the potential of DLT since 2011 by taking part in industry initiatives and working with fintechs specialising in DLT. The advancements in the post trade landscape will no doubt provide challenges, but it will also present opportunities in this changing world.
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What is Blockchain?