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and even faxes (remember those? They’re
still here).
“The fear of all fears,
that the buy-side will
trade with each other
and not need the sell-
side anymore.”
Huge wins
This is all not to say DLT is a silver bullet
for more fundamental structural issues in
the market. But it is to say, my goodness,
if we’re going to be wholly theoretical,
let’s at least play a role in evolving and
strengthening a market above and beyond
the negative potential inherent in any new
system, technology, or process. The work
being pioneered by Nasdaq in its proof of
concept with the government of Estonia,
Singapore’s focus around insider trading,
and the DTCC’s recent announcement of
a large scale pilot to ‘re-platform’ the ex-
isting Trade Information Warehouse and
their housing of industry-wide Credit De-
fault Swap data (above and beyond their
other previously announced Repo-related
Blockchain project), are milestones in an
overall, far-reaching discovery process.
Using DLT to provide greater transpar-
ency in trade information could be a huge
win; players like DTCC, given their role,
are mindful of any impact they might
have on the wider industry. Their interest
says something about Blockchain and
how it should be embraced in exploration
as opposed to intellectual exile. The chal-
lenge now will be who will implement a
production blockchain that will deliver
significant cost and operations savings,
broad industry adoption, as well as sup-
port more efficient operational processes.
Interestingly, the UK’s Financial Con-
duct Authority (FCA) has also taken quite
a divergent stance from its sister organi-
sation on blockchain. The FCA’s focus is
more so on Bitcoin functionality than dis-
tributed ledger. In August of 2016, it an-
nounced it was close to approving a small
number of firms to begin formally using
bitcoin as a cryptocurrency. This is a big
R E G U L AT I O N ]
step considering virtually no approvals
have been granted thus far, and the FCA’s
stamp is required for local companies
to utilise Bitcoin as related to payments
and settlements. This would implicitly
lead towards further usage of distributed
ledger and other value elements of Block-
chain as a major driver behind the desire
to utilise Bitcoin, isn’t just the advent of a
new currency, but because of expectation
of massive savings in the payments and
post-trade settlements across B2B, P2P,
and beyond.
Misinformed fears
They’ve more recently just released in
April 2017 a full-scale consultation paper
on distributed ledger technology, noting
that although considerations related to
regulation, competitive interests, and
operational processes are still to be vet-
ted, the overarching functionality clearly
holds much evolutionary potential. Fur-
ther, it notes that these potential benefits
are still somewhat as-yet-unknown and
goes on to differentiated values related
to Bitcoin, payments, smart contracts,
insurance, and distributed ledger, but
promising nonetheless. They also touch
upon more broad-reaching questions
related to permissioning and crypto-cur-
rencies. Related to regulation, they preach
consideration and understanding and
specifically note herein:
“We may, therefore, need to consider
whether our rules prevent or restrict
sensible development that would bene-
fit consumers and hence whether chang-
es may be needed,” and that the FCA
does not see a “clear need to consider
changes to our regulatory framework for
blockchain solutions to be implement-
ed” at this stage.
At the end of the day, DLT allows us to
imagine a world where post-trade activity
could become a series of smart transac-
tions and automated processes that, by
default, remove unnecessary steps, sys-
tems, and cost. However, the unchecked,
misinformed fears of regulators like
ESMA related to the perceived complex-
ity of these processes could mean that
they will slow adoption and the success
needed for the industry to survive, let
alone thrive.
Evolve; finance is nothing if not Dar-
winian. The fundamental law of nature is
anything not growing is dying.
Summer 2017
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