JPX: Blockchain Technology Can Transform Capital Market Structure

Japan Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term Group, Inc. (JPX) today published a working paper on Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Read this Term technology titled “Applicability of Distributed Ledger Technology to Capital Market Infrastructure”. The paper paints a very positive picture regarding the potential of DLT to influence the financial markets but also raises questions and issues with its application.

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First they say there is no reason to limit the application of blockchain technology to just currency, and that the existing centralized consensus process can be replaced by it in theory. "Due to DLT’s innovative concept and wide range of applications, it is said that it will bring a ‘paradigm shift to the fifth generation’ of IT evolution. One of the areas attracting people’s attention is the application of DLT to capital market infrastructure. DLT technical features are considered to be appropriate for the layers of capital market operations especially those for the post-trade process."

The writers also pointed out that DLT may replace existing infrastructure for reasons beyond simple efficiency. Global exchanges, CCPs, CSDs, banks, brokers, and market facility providers have proactively explored DLT applications through PoC (proof of concept), and investment in technology providers or participating consortiums.

JPX established an internal research group late last year and has studied the applicability of DLT to capital market infrastructure. Through two PoCs with six other Japanese financial institutions, during April to June 2016, they have tested whether a streamlined process on securities market, security issuance, trading, settlement, clearing, and ownership registry, could be realized in a DLT environment.

Through this research and PoCs, JPX have concluded that DLT has the potential to transform capital market structure by encouraging new business development, improving operation efficiency, and contributing to cost reduction.

Access the whole JPX working paper here.