Broadridge Financial Solutions, Inc. (NYSE:BR), a provider of investor communications and technology solutions, has issued a report about the momentum of blockchain technology in the financial markets in collaboration with strategy consulting firm Bain & Company.
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Titled “Blockchain in Financial Markets: Gaining an Edge”, the report reveals that more than 80% of financial market executives interviewed expect the impact of blockchain to be “transformative”, and expect it to be adopted by financial institutions by 2020. However, 38% of those surveyed said that they are taking a wait and see approach to the technology.
“It’s clear that financial organizations are talking about or preparing for DLT (Distributed Ledger Technology), yet despite delays in adoption, these firms cannot ignore the impacts on market structure,” said Thomas Olsen, Bain partner and the firm’s global leader for C&IB and Market Infrastructure. “Firms need to elevate their thinking on DLT beyond their innovation labs. The question requires a top-down, strategic lens to complement the bottom-up experimentation,” he added.
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The survey estimates the total cost and capital savings to global financial market ecosystems to be between $15-30 billion (or around 1-3 basis points of total assets).
“The adoption of blockchain in the financial industry will drive significant benefits to market participants, including operational and cost efficiency,” said Vijay Mayadas, Head of Global Strategy and Fixed Income at Broadridge Financial. “We are already seeing participants such as the Australian Securities Exchange (ASX) taking a leap in investing in this transformative technology by using DLT to upgrade their post-trade systems. The trend will continue as market participants see real benefits with DLT, which include know your customer (KYC) utilities, more efficient clearance and settlement and enhanced reference data management.”
The research found that the impact and evolution of blockchain will vary by market with four distinct models likely to evolve. In large, complex, but mostly domestic markets such as Japan and China, blockchain is more likely to reinforce a relatively integrated structure for cash securities. By contrast, it may have the opposite effect in large financial hubs, such as the US and major European markets where blockchain could foster an even more unbundled and fragmented market structure, with multiple exchanges and utilities.
Smaller, domestically focused markets like Australia, Canada and Brazil, where blockchain could have the earliest impact in cash securities, are already integrated, centralized and face fewer obstacles than the other models. In these markets, economic logic will likely drive consolidation as the technology comes into force.
Small markets with international connections, including Singapore and Hong Kong, are likely to remain integrated for cash securities but will be more influenced by global market practices and links in areas such as derivatives and over-the-counter (OTC) securities, the report concludes.