Advancing Capital Markets with Blockchain Technology

The capital markets industry crucially depends on the information exchange among market intermediaries and hierarchical systems and their legacy, leading to processing time and increased cost. Thus, industry players are all the time seeking advanced technology solutions to attain cost optimization as well as process simplification and automation.

Virtual currencies and Bitcoin have come into eminence recently, as real-time, open-source payment infrastructure devoid of any central regulatory authority. These are reliant on critical mathematical formulas, cryptography, and shared public ledgers. Common with technology venture capitalists and enthusiasts, this concept has not had much resonance with capital market firms and banks yet, due to the risks involved and regulatory uncertainty. However, global financial services companies are assessing the underlying technology of blockchain for possible deployment in mainstream capital markets and banking.

What is the requirement of blockchain technology in the capital markets?

So much tech-novation in Capital markets is associated with the front office. Primer of the relational database system may have removed the paperwork to carry out a security trade in a flash, but it still requires days to settle a transaction causing the laborious middle and back-office trade. This settlement is presently managed by stock exchanges by the Central settlement authority, which is called CCP (Central Counterparty Clearinghouse) in a lot of countries.

The DLT removes the requirement of such a central repository by settling an asset trade among the counterparties immediately. It has the competence of settling millions of these kinds of transactions per second saving a significant amount of operational cost to the company.

Any hack attack like Wannacry which tries to change a transaction at a sole node in the network has to update the similar transaction in every single other node in the chain to be effective. This is impossible as any such shot will alarm all the nodes forming the network foolproof for any such deceitful transaction and exhibits improved security.

The industry is Adopting Blockchain Technology:

Several applications are getting built directly by the market participants. Big institutions, such as JP Morgan, Vanguard and Bank of America etc, are investing severely in these latest emerging technologies. The future of blockchain can be seen to be adopted by all the significant industries. Strategic partnerships are also usual, with the latest successes seen in trade finance, securities lending, and credit derivatives. The third prime avenue is technology companies that bring a present network of participants. This comprises financial exchanges (for example ASX), consortiums, and mature FinTech’s (for example Broadridge).

When you survey the range of blockchain technology applications in development, you see a general thread: Everyone is seeking instant payback. Below mentioned three factors can accommodate these savings:

• Asset Digitization: Companies can today trade “tokens” – it is a digital representation of the primary assets – avoiding the need for time-consuming and costly transfers.
• Shared database: Each of the participants has access to similar immutable, verified data. This eliminates the requirement for several recordkeepers and assists in reducing errors.
• Smart contracts: Agreements and terms are embedded in the blockchain that helps automate processes with precision and speed.

Conclusion:

Though blockchain technology applications are still in the earlier stages and will require some time to be extensively implemented in the business enterprises, the best step ahead for the service providers such as Velocity Lab is to collaborate with the other professional players in the industry, develop Proof of Concepts, form a consortium, and test use cases in the real-time environment providing new business opportunities.