In the last few years, DLT (Distributed Ledger Technology) and Blockchain have evolved from a buzz word to an industry recognised technology and following the consensus at the Sibos 2019 could possibly transform our industry.
In the last few years, DLT (Distributed Ledger Technology) and Blockchain have evolved from a buzz word to an industry recognised technology and following the consensus at the Sibos 2019 could possibly transform our industry. This article highlights the need to identify potential markets to use the technology in and what to bear in mind when choosing the partners you collaborate with. It is important to point out, that in the post-trade industry the discussion centers on the underlying technology and its potential application first as a database, rather than on individual cryptocurrencies or tokens already out there.
A common ledger system, which can represent the assets owner easily in real time and make it possible to interact, would solve many of the challenges we face in the industry today. It would be a real game changer if the ultimate beneficiaries could be identified and if all the participants were able to access corporate action information via a ledger. And once smart contracts are included, it’s possible that fully automated corporate action contracts that could use client feedback to instantly represent changes on the ledger. As a next step, automated repo transactions and securities lending without any intervention, automated valuation, margin call and settlement could be included. All these steps are achievable, but we have to start somewhere.
Digitalisation has reached our industry and now is the time to evolve the underlying systems. Legacy technology at the end of their lifecycles could start to be replaced with the appropriate system to support this transformation rather than to invest in old systems with updated front-ends. Numerous user- cases, pilots and live transactions have already been conducted, highlighting that DLT is quickly maturing. With all this potential, the question is how do organisations keep moving and stay ahead of the curve? As a first step, the systems could be deployed in niche markets, which are not currently serviced well. This would help the technology to expand and be a starting point of internal implementation. After all, it is easier to start with a new technology, where you do not have to compete with heavy sunk investment costs, associated with implementing T2S (TARGET-2-Securities) or a DTCC (Depository Trust & Clearing Corporation) with huge volumes and very tight pricing.
A key consideration is who to partner with in this rapidly changing world. Most businesses will have an idea of which processes or costs require further analysis. There are many different technology models, from developing it yourself in-house to the old model of enterprise solutions including the ownership of the developed intellectual property. With the risk of disintermediation and one winner taking over the markets, possible with technology like DLT, an important consideration is the selection of your partners. The partners should be large enough to gain enough market-share to reap the benefits of the technology, but also have the same vision and be willing to work together as equal partners.
Thus the questions to ask yourself when moving ahead in the DLT space today is, who would you like to partner with and which market would you like to focus on?