The traditionally monolithic trading systems have created barriers for financial institutions in improving their end-to-end trade operations easily. Data migration, staff training and de-coupling existing systems from a bank’s architecture are often a risky endeavour requiring a considerable amount of resources.

In recent years, different concepts for a new model of trade servicing through the usage of a marketplace platform and distributed ledger technologies have arisen.

Most significant evidence highlights that disaggregation of trade services can aid organisations in increasing the quality and availability of services supplied, as well as give organisations the ability to engage in specific products or services without requiring considerable investment.

The research

With this focus in mind, the Blockchain for banking team have drafted an internal study around the following topics discussing potential areas for disruption utilising Blockchain/DLT technology in Capital Markets:

  • Analysis of today’s lifecycle market
  • Smart contract enabled access (blockchain disrupting this current process)
  • Steps towards disruption
  • Flexibility offered by engaging trade services through a marketplace

The paper focuses on the current state of trade servicing and the components underpinning the process, a future model that improves the trade servicing process, roadmap and risks in this endeavour to challenge the status quo of trade servicing infrastructure.

There are new and potentially disruptive ideas in this area that focus on providing flexibility, competitive prices, and a more tailored service to Financial Institutions when it comes to the software they need to support operations. It aims to develop a hypothetical marketplace that is able to provide the service offering the market requires.

What Blockchain can bring to Capital Markets?

Blockchain technology is widely acknowledged to hold the potential to disrupt many industries, particularly the financial industry. It would make the trading and post-trading processes in this case much more efficient and improve regulatory control.

The purpose of implementing blockchain is to fundamentally review the ways in which companies trade systems, altering the roles of stakeholders and the costs previously associated with the monolithic-type systems. Creating a gateway of sorts between companies and required systems will allow for seamless integration of plug-and-play systems which will positively affect the costs associated and the licences that would normally be required. Utilising smart contracts in the context of blockchain technology will also facilitate the automation of legal processes that are typically time stringent and paper-heavy.

Using a DLT environment would create a decentralised system of data registry where transactions are instant, transparent, reliable and incorruptible as they must be confirmed and encrypted. This will provide a sense of security that trade details and smart contracts are secure and only participants of the permissioned DLT can access it. Trust is established from the process itself rather than from any counterparty’s status and participants validate changes collectively, which are updated across the network almost immediately. This would also reduce any chances of human error and would make gaining access much more efficient as when transacted these contracts have workflow lifecycle functions defined in the repository.  Finally, improvement in regulatory efficiency through real time monitoring of financial activity between regulators and regulated entities will create a sense of transparency that was lacking within incumbent systems.

Closing Remarks

Change doesn’t come by easily – nor does evolution. The revolution of technology carries both components, making it very difficult for traditional institutions to adapt. The future path towards the revolution is marked, but in any case a transition phase would be required to integrate blockchain technology from the current legacy system to the future business framework in the short term.

Rather than launching independent projects, industry stakeholders must together envision a new financial ecosystem in order to take full advantage of the benefits of the technology and not be left aside as in the future a lot of existing actors could be replaced by new entrants that adopt this new technology.