JPX: Blockchain Technology Can Transform Capital Market Structure

They see no reason to limit the blockchain to currency, as it can replace the existing centralized consensus process.

Japan Exchange Group, Inc. (JPX) today published a working paper on blockchain 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.”

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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.

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