Gu Yanxi: The application of blockchain technology in the securities trading market尴尬

When the value of blockchain technology is just beginning to be recognized, the consensus in the market for its application in the securities industry is post-trade clearing. So in 2016, some high-profile startups are dedicated to providing solutions in this area. It is Digital Asset Holdings in the US and SETL in Europe. In 2018, the industry gained a deeper understanding of the application of blockchain technology in the securities industry. It has been found that blockchain technology can actually provide full lifecycle management of digital assets from generation to circulation. The financial products it can support are not limited to the company's equity represented by stocks, but the various assets and interests in the real society. These assets and interests can be represented by ST in the blockchain, completing the production, storage and circulation of the chain. As a result, a fully new capital primary market and secondary trading market began to emerge.

The US STO market is the most typical representative of this aspect. Although it is still in its very early stage, it is very divided and independent development stage. However, the use of ST to represent various assets and the use of blockchain technology to support the generation and circulation of such assets is a consensus not only in the US market, but also globally. The US has OpenFinance Network and tZERO in terms of clearing and asset custody after trading with blockchain technology. Canada has a Canadian stock exchange. Switzerland has a newly established Swiss Digital Asset Exchange. However, due to the current restrictions on independent regulation and existing business practices, the advantages of blockchain technology have not been fully realized in these cases. The application of blockchain technology in these cases is limited to a few institutions, and even only one. This is not at all the original open and transparent feature of the blockchain.

A very interesting case in this regard is the newly established Swiss Digital Asset Exchange (SDX). The exchange plans to use blockchain technology as the underlying clearing and settlement system, which will pass the existing securities through the securities pass and then trade on the exchange. The exchange clearly states that it will proceed within the current regulatory framework. When considering the underlying blockchain technology, it evaluated almost all blockchain technology solutions on the market. And finally decided to adopt the Corda of R3. Such an option would certainly surprise practitioners in the blockchain industry because Corda is not really a blockchain technology. Its consensus node is a node that is selected and is definitely trusted. Trust between nodes already exists before the link, and there is no need to ensure this trust through Corda's consensus mechanism. Corda is therefore more like a distributed database than a distributed accounting technique. However, considering SDX's regulators and its market participants, it's no surprise that SDX uses Corda. After all, Corda is a technology created by financial institutions, which is produced in the existing regulatory system, market structure and business practices. So SDX is completely reasonable for Corda. Also don't forget that SDX itself is a fully centralized organization. But can Corda support the brokers in another jurisdiction to join in easily? The answer is obviously no.

If the blockchain technology itself is open and transparent, it will improve the post-securities transaction services and asset custody. The scope of its support should be global, and the value it can create can be maximized. However, if such an organization provides post-transaction clearing services and asset custody in this way, it will certainly be subject to the boycott of financial institutions and the prohibition of national regulation. Therefore, the application of blockchain technology in the field of securities trading faces an embarrassing situation. It accepts the status of independent regulation of existing countries and the habit of independent operation of enterprises, and only limits its value to the scope of one country, even within the scope of several cooperative financial consensus. Or in order to give full play to its value, regardless of the existing regulatory systems of various countries and the operating habits of financial companies, continue to develop in the open and transparent way of Bitcoin, so it will be resisted by major economic entities and financial institutions.

Then, is it possible to gradually transition from the current less than ideal development state to the ideal state? That is, whether it is possible to gradually establish a complete, cross-border, and capable based on blockchain technology. For the regulation of the generation and circulation of digital assets accepted by countries, can we maximize the value of blockchain in the field of securities trading?

I think the above problem is actually not a question of practical relevance, but a theoretical one. I think the question that should be asked is: In the current society, what areas have very strong needs, need to use blockchain technology to link some regulatory areas, and realize the generation and circulation of assets on the basis of the same technology. Process? From this point of view, it is obviously impossible to adopt this technology in some regulatory areas in the world. Such a regulatory area must be the region where the current securities industry is developing very positively. They are built on a centralized system and on this basis form a complete market structure and regulatory laws. Such a structure is actually very central in all respects. In such a very successful situation, this regulatory area certainly has no incentive to work with other regulatory regions to establish a blockchain-based infrastructure and corresponding market structure.

The real application of blockchain technology in the securities industry, its application environment must meet the reasons leading to the emergence of blockchain technology. That is to say, in a situation of mutual distrust, there are very strong motives that need to cooperate to achieve common goals. From this perspective, the areas most likely to apply blockchain technology to the securities industry must be those that are not leading in the current global securities market, but have a very strong momentum in the global securities market. The area where competition takes place.

In terms of the order of implementation, there must be a very stable blockchain bottom layer. Then there is a coalition between brokers across the border (see my article, the next blockchain-based cross-border financial union ). Finally, there are cooperation between multiple jurisdictions. Not the reverse order. This sequence will be similar to the order in which Stellar and IBM collaborate to build World Wire.

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