Blockchain was a priority topic at Davos; a World Economic Forum survey suggested that 10 percent of global GDP will be stored on blockchain by 2027.
Backed by sophisticated technology, blockchain can potentially disrupt every institution in some way. Blockchain offers huge potential for trading, securities lending, repo and margin financing and monitoring systemic risk.
What does blockchain bring to stock market?
Blockchain can be the answer to interoperability, trust and transparency issues in fragmented market systems.
Stock market participants such as traders, brokers, regulators and stock exchange are required to go through a cumbersome process (which takes 3+ days to complete transactions, mainly due to the role of intermediaries, operational trade clearance and regulatory processes).
Blockchain can make stock exchanges much more efficient through automation and decentralisation. It can help reduce huge costs levied on customers in terms of commission while speeding up the process for fast transaction settlements.
The technology can have viable use in clearing and settlement, while securely automating the post-trade process, easing trade paperwork and legal ownership transfer of the security.
Blockchain can eliminate the need of third party regulator to a large extent, since the rules and regulations would be in-built within smart contracts and enforced with each trade in order to register transactions with the blockchain network acting as a regulator for all transactions.
Automation of post-trade events
Applying blockchain and smart contracts to post-trade activities can eliminate the need for intermediaries, reduce counter-party and operational risk, while providing the infrastructure for faster trade settlement.
Financial institutions can settle securities in minutes instead of days, with the major benefits being streamlined real-time settlement, improved liquidity, supply chain optimisation and increased transparency.
Mechanism for fairness and transparency
If implemented, blockchain can act as an online automated surveillance system for each transaction. A blockchain-based exchange can have inbuilt characteristics to track, block and report illegitimate attempts made by anyone on the network, and can provide a robust platform to implement the security policy and standards.
Since the blockchain ledger is designed in such a way that all participants have full record of transactions and, therefore, holdings of investors, it can bring in complete transparency and trust in the market.
Lower transaction costs
Blockchain transactions are faster, as trade confirmations are done through smart contracts by peers instead of any intermediary. As the intermediaries in the system get minimised, costs associated with them, like trades record keeping, audits and trade verifications also get eliminated or reduced.
Higher liquidity
Blockchain can reduce the inefficiencies through automation, which also leads to reduction in cost and thus lowering entry barriers resulting into increased market base. For people, who could not access the markets due to cost barriers will be able to participate, ultimately increasing liquidity and investment.
CDRX
Crypto Depository Receipts (CDR’s) utilize blockchain technologies and native issuance open up a whole new world of finance, removing corporate actions, allowing fractional ownership and almost entirely eliminating transaction costs. Underlying shares are sourced from the market or corporate entity (new issue). CDR’s are then issued by the custodian trust on a blockchain which allows voting via smart contract. Each CDR represents a single share, and can be traded in fractions of a share, single or multiple shares. CDR’s can be traded on exchange or directly between two parties. CDR’s are in testing now:
No one knew when Google started that it would destroy Alta Vista and eat Yahoo’s lunch. No one knew that eBay would leave OnSale in the dust or that a startup called Facebook would kill off Friendster and MySpace. Investors certainly didn’t, which is why they spread their money around, hoping that some of it would stick to a business with a real product in an entirely new market environment. If I were a betting man, I’d bet on CDRX.
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