The latest institutional player to grapple with the effects of blockchain technology on the financial system is the International Commodities and Derivatives Association (ICDA), a long established representative group for global brokers, investment fund managers, commodities trading firms, market information providers, exchanges and clearing houses. The Geneva-headquartered organization, which until recently was known as the Swiss Futures and Options Association (SFOA), has announced that it will hold an event called the ICDA Blockchain Conference in the City of London at April 2016.
The ICDA says this event “is not for techy geeks” but looks at the blockchain from a business development perspective and will explore how the particular qualities of this new technology will change the face of business for exchanges, banks, CCPs and the industry at large. We talked with Dan Day-Robinson, Chairman of the ICDA, to understand how his organization views the possible effects of the disruptive technology derived from bitcoin on its members.
Since when has blockchain technology been on your radar?
Last September we entered into a discussion about blockchain with some of the members of the Association and quickly recognised the significance of a technology that has the potential to cut-out intermediaries for the markets that we serve.
Bitcoin was initially hailed as a method to bypass the established order, do you think banks and exchanges can ignore the technology?
Bitcoin and blockchain are two very different propositions. Whilst blockchain is hailed by some as the ultimate disruptor, in truth the range of applications for distributed ledger technology are only really beginning to be appreciated, and many of them can be used to facilitate and streamline existing processes. Whether that is the best use of this technology, remains to be seen. Similarly, whether the technology can be kept within the confines of the traditional system also remains to be seen.
It is still a somewhat nascent technology and, for those of us who remember, looking back to the early days of the internet, it was impossible then to have imagined that it would support the kind of platforms that we all use every day. Likewise, the evolution of blockchain is difficult to foresee, but what is certain is that any business with a vested interest cannot afford to simply sit back and observe.
What is the best example you know of blockchain technology disrupting traditional commodities and derivatives trading?
Perhaps the most obvious disruption is in terms of trade settlement. Blockchain technology could potentially enable virtually frictionless trade so that we move from a settlement cycle of T+3 to same day, even real-time settlement. This could mean a radical change for portfolio and asset management from a risk-monitoring point of view.
In a world of smart contracts, what is the role for exchanges?
Smart contracts are effectively self-executing, self-enforcing contracts, so in theory they will eventually eliminate the need for third-party mediation. In practise thus far the kind of smart contracts that can be supported by the blockchain are relatively simple, template- style contracts and there are still questions about how complex these contracts can practicably become and whether some third-party involvement will still be necessitated by the process.
What positions do you see central banks adopting with regard to the technology?
The most optimistic view, from the point of view of the central banks, is that the transparency afforded by blockchain technology will actually facilitate regulation and compliance, as well as potentially eliminate interbank liabilities. An initial wariness has been replaced by a recognition of the possible benefits, and the realisation that in order to fulfil their obligations to ensure stability throughout the financial system it is necessary that they evolve.
What sets your conference apart from other blockchain events?
Rather than get caught up trying to explain how the technology works, we want, as far as possible, to explore how it can be effectively applied in a business context, to showcase real use-uses for the commodities and derivatives markets, to think about how as an industry we can best evolve to meet the challenges and opportunities it presents. You don’t need to know how a car works to know that it has the potential to take you somewhere interesting.
What type of audience are you trying to attract?
Our conference is aimed at anyone who is business-minded, from start-ups with great ideas and products to promote, to executives who want to understand exactly how blockchain is likely to affect their businesses and who want to see examples of viable use-cases for the derivatives and commodities markets. The conference will cut past the technology hype and focus on the business opportunities and potential profitability of new products and market approaches.