The aim of developing blockchain technology is clear: to circumvent central authorities and the government. Today, however, the developers have found other applications for this disruptive technology, such as updating back-office processes. And no institution have shown interest in using the applications more than financial exchanges. Basically, stock trades happen in milliseconds with the aid of algorithms. Completing them requires coordinating payments and deliveries on the database. Subsequently, there will be a need to reconcile the records.
Challenge of stock trading and its solution
Essentially, one inherent challenge that this process always has to deal with in big financial centers is that trades take a long time to settle. Nine times out of ten, these stock trades settle in days. However, experts in his field are trying to figure out the possibility of deploying the blockchain to enhance the process.
In fact, this is feasible given that blockchain is a distributed, immutable, transparent and tamper-proof transaction ledger. Therefore, the union of all these positive attributes can speed up and simplify the process.
Rewriting the narratives
Already, stock exchanges in the United States, Switzerland, Singapore and Australia are experimenting with the blockchain in this regard. For instance, the ASX, Australia’s stock exchange deployed the blockchain to replace its main clearing and forwarding platform. Similarly, the exchange has been testing technologies from a U.S.-based firm, Digital Asset. From their estimation, the project will launch in Q3, 2021. When the stock exchange starts using this, only a few banks and brokers will opt for direct access. In the end, everyone else will have to trade through them. However, participants won’t have access to the entire dataset.
In a similar vein, on November 11th, the Singapore stock exchange announced an important partnership with the central bank and the Monetary Authority of Singapore (MAS). This partnership entails that the institutions work together to deploy a blockchain-based prototype for delivery, payment and the settlement of assets.
Similar projects are in the pipeline
Digital Asset’s Kelly Mathieson, says that the reason behind her firm’s purpose-built programming language, DAML, is to simplify the innovation. To this end, DAML enables the automation of financial contracts. In the end, the system simplifies the tedious process of reconciliation.
Aside from Digital Asset’s project, other companies are launching extensive research into this field. For instance, the owner of Swiss stock exchange, SIX, is looking forward to launching a unique asset-trading platform. SIX says that the new platform will be able to trade stocks and bonds in a tokenized form. Basically, this means that the platform will trade the traditional assets in a format that the blockchain can handle.
Regarding the benefits of the platform, the SIX’s Head of Securities and Exchanges, Thomas Zeeb says that it will eliminate the constraint of trade size. Zeeb added that when this happens, the system will make a wide spectrum of assets tradable.
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