Global Custodian Securities@Sibos 2019 - Page 16

[ S I B O S PA N E L S | M A R K E T I N F R A S T R U C T U R E ] T here is a broad con- sensus amongst the post-trade industry that blockchain technolo- gy will revolutionise the custody and clearing world and could radically change how assets are maintained and stored by custodians and CSDs. The co-founder of Ethereum, for example, does not see the need for central securities depositories (CSDs) to exist in their current format in a financial system based on distrib- uted ledger technology (DLT). A decentralised DLT system could, for example, remove the need for a mar- ket infrastructure provider to hold a security or token in its own physical or electronic vault, while also poten- tially allowing real-time settlement. While the full disintermediation of market infrastructures has been played down in recent years as start- up FinTechs look to partner with incumbents, there remains some de- bate about the future roles of certain players. “A CSD is a conceptual construct and has a physical manifestation because that’s what we know how to build,” said Joseph Lubin, founder of ConsenSys and widely known as one of the founders of Ethereum. “It can continue to exist as a conceptual or logical construct, but it can take on a decentralised implementation. Global financial institutions can get togeth- “A CSD is a conceptual construct and has a physical manifestation because that’s what we know how to build.” JOSEPH LUBIN, CONSENSYS 16 Securities@Sibos January 2019 er, define a protocol and build that system, but there doesn’t need to be a central physical clearing house or implementation of a central database; it can be realised as a series of nodes on a decentralised network.” We exist for a reason Recognising the threat of block- chain to their current services, CSDs across the world have been work- ing together and with regulators to develop blockchain technology in the post-trade sector and cement their future role. Some believe the involvement of CSDs in a governance and operation- al role could help increase the trust of investors and raise the quality of the ecosystem infrastructure un- derpinning these new asset classes. CSDs could become a ‘custodian of the code’ ultimately playing a similar role in ensuring safety and oversight within the system. Pushing back at Lubin’s sugges- tion, Walter Verbeke, global head of business model and innovation at Euroclear SA/NV, said that ultimately the market looks to CSDs for safety and efficiency – something investors need to feel comfortable, even in a DLT world. “As a CSD we are not a service company, we were created by the market,” said Verbeke. “A capital market has inherent risks: counter- party risk, liquidity risk, credit risk, settlement, legal risk, there are so many risks, but they are not inherent to securities as compared to another asset class; they are not inherent to a market infrastructure, be it a trading venue, clearing venue or settlement venue, they are inherent to the cap- ital markets. Capital markets have created CSDs to mitigate some of those risks…In a distributed world