Blockchain is not a be-all and end-all solution to every challenge that we face, and we consider it crucial to recognise the technology’s strengths as well as weaknesses. Value derived from innovative ideas and substantive technological utility always comes first in the projects we engage with, and we are not afraid to say no if we feel that this is not the case.
Currently the clearing and settlement of securities transactions involve a complex network of brokers, custodian banks, stock transfer agents, regulators, and depositories.
A single transfer can require a dozen intermediary transactions, and typically takes three days. Some 20% generate errors, which must be corrected by hand.
With a blockchain, two trading parties could read and write to a common, trusted, and error-free database. The transaction could be written in legal language as well as in computer code, so that the data exchange itself is the settlement.
Brokers could potential trade on a larger blockchain to disintermediate the custodians, thereby further reducing total transaction costs.
Institutions issuing securities, such as corporations and municipalities, could issue them directly onto the blockchain, thereby disintermediating their stock transfer agents.
Benefiting from the nature of a decentralized ledger, the technology being implemented in securities transactions can cut risk and produce significant savings of costs and capital.
Source: Thinking Outside the Block, BCG; Cover photo by Tax Credits, CC License