The biggest potential benefits of blockchain technology for the securities industry will be streamlining and enhancing the post-trade process, a new report from Moody’s Investors Service Inc. suggests.
Although the credit-rating agency’s report finds that distributed ledger technology (DLT), also known as blockchain technology, could transform many aspects of securities trading, the biggest opportunity would be to cut costs and increase the speed of trade settlement.
Trade execution processes are “already relatively efficient,” but the post-trade environment is comparatively cumbersome, the Moody’s report says: “In some cases, more than a dozen intermediaries are involved in the transfer of a security and cash between a seller and buyer, with each of them maintaining individual ledgers that require costly reconciliation.”
The implementation of blockchain technology has the potential to improve This process. Says Robard Williams, senior vice president with Moody’s, in a statement: “Rather than each post-trade participant maintaining the same data in their individual ledgers, a master ledger shared among those participant would eliminate the need for costly reconciliation processes.”
The existing market infrastructure firms that handle clearing and settlement would likely continue to serve these functions, even if some of their current processes are eliminated by the adoption of blockchain, the report suggests: “Innovative incumbents are already making large investments in blockchain technology and are collaborating with one another, as well as with startup companies to create sector-wide solutions.”
The reduced reconciliation costs that could follow from the adoption of blockchain technology “would help offset lower revenues that custodians, clearing houses and/or registrars might suffer, resulting from faster settlement, improved asset safekeeping and ownership recording. Additionally, innovative incumbents will likely generate new revenue streams from blockchain-enabled services,” the Moody’s report says.
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