Can regulations be "rolled back"? Blockchain is transforming traditional securities industry

The financial market will become a training ground for blockchain + other fields.

Editor's note: This article is compiled from Data Driver Investor reports, the original author: Norbert Biedrzycki, Microsoft Services CEE (Microsoft Central Eastern Europe · Central and Eastern Europe) executives, former vice president of digital McKinsey, former Oracle consulting and business development services department head.

By reducing transaction costs and enhancing trust between investors, blockchain can make it easier to transfer property and other assets. But does it have the opportunity to be used by the world's largest stock exchange?

In the past two or three centuries, the rules governing the trading of financial assets have hardly changed. Some people say that these regulations work relatively well (except for occasional shocks that shocked the world). So does it need to change? Should it change? Can it change?

I believe that it needs, should, and can change. How do we get new rules for boards, investors, sellers, buyers, intermediaries, and regulators? Assuming that change is necessary, will the blockchain be the main step in the traditional stock market change?

Imperfect traditional exchange

Today's investors rely on traditional trading and accounting systems. These systems are too old to be called rigid. These systems generate a lot of cost and also extend the time to close the transaction. This is because financial asset transactions require multiple business entities to be arranged in a complex network that includes intermediaries, settlement systems, and business partners.

Whether it is an investor, a broker, a custodian, a stock exchange management or a central regulator, all actors involved in asset transactions (ie, trading transactions) are obligated to generate information, accept authorizations, and continually update transaction status records.

Now, blockchain can change that. By using a distributed ledger of blockchains, key transaction-related processes such as issuing securities, trading, clearing and settlement can be quickly processed without much friction.

The impact is coming

There is another factor to consider: trust, where investors are willing to believe and trust the general rules that underpin the securities trading system.

The 2008 financial crisis (to a certain extent) was triggered by the proliferation of opaque financial instruments, which raised questions about the transparency of the existing global model, and the collapse we experienced ten years ago exposed the search for alternative solutions. The need for this will help to create a more transparent, tamper-proof system.

New government regulations emerged after the accident, and today in the United States, these regulations are being “rolled back”. (Odaily Planet Daily Note: After the 2007-09 financial crisis, the US Obama administration introduced the Dodd-Frank Act, which regulates the banking industry, which is considered to be the most comprehensive and severe financial industry since the Great Depression. The reform bill; in May 2018, the US House of Representatives approved the S. 2155 motion on reforming the Dodd-Frank Act of 2010 with 258-159 votes.)

The blockchain cannot be rolled back.

Blockchain

Given its characteristics, I believe that blockchain can bring hope to the future of the stock exchange market.

In blockchain-based exchanges, black box trading will become a past tense. Smart contracts can eliminate doubts about whether a transaction is being executed correctly, and we will no longer need an indispensable but inefficient regulatory mechanism today.

For example, Nasdaq management has been focusing on the blockchain for three years. As early as May 2015, Linq, a private equity trading platform, was launched to allow non-listed companies to issue their shares digitally. Last year, NASDAQ Stockholm and the Swedish bank SEB began testing the use of blockchains to register all transactions in real time. This blockchain-based solution has undergone rigorous testing on the NASDAQ Tallinn exchange. The premise of the project is that the company's shareholders will be able to vote during the investor meeting or digitally transfer their voting rights to the agent.

The London Stock Exchange Group (LSEG), in collaboration with IBM, has begun testing a blockchain-based platform designed to fully digitize the trading of SME stocks, conducted by LSEG's Italian operator Borsa Italiana.

The Australian Securities Exchange also plans to complete a two-year program this year to develop a system that will increase operational transparency and enhance investor safety.

A notable example of a blockchain becoming part of life is the Delaware Initiative. In 2017, Delaware was known for its high concentration of listed companies (and very friendly to corporate regulations and taxes), and the law recognized the blockchain as an official settlement system. State agencies are currently developing a system that will allow companies to generate and store any company-related data.

However, those who traveled for blockchain in Delaware noted the complexity of the securities market and they were particularly concerned about the challenge of tracking share ownership. The project promoters say that the blockchain is a good solution that will make it easier to verify share ownership and significantly reduce trading time.

This is neither an illusion nor a hype. This is happening.

How does the future of the blockchain blossom?

First, financial institutions must ensure that their clients' funds are safe. Therefore, even if there are already relevant examples, it is not surprising that the capital market is still slow to embrace the blockchain. To see real progress, certain conditions must be met, the first of which is to establish the most stringent safety standards for block systems. The implementation of the blockchain requires appropriate laws. Unfortunately, the current legislative environment is somewhat polarized and inconsistent.

We must also bear in mind that technology is still limited, and work to increase production capacity and reduce transaction costs is underway. On the New York Stock Exchange, there are about 3 billion transactions on a normal trading day. Developing a new platform to handle this amount of data can be complicated and time consuming, which translates into cost.

However, I believe that the financial market will see the most important landing of the blockchain, and they will become training grounds in other fields.

This article was translated from https://www.datadriveninvestor.com/2019/04/09/will-blockchain-transform-the-stock-market/ . Please indicate the source if you reprint.

Author: aloe

Source: Planet Daily