A recent research report by Tabb Group says that blockchain-powered systems are only a matter of time. But contrary to some bullish commentaries, they won’t replace conventional clearing houses, and may in fact enhance them.
Tabb Group, according to its website, is a capital markets-focused research and advisory firm with offices in New York and London. It says to employ an interview-based, “first-person knowledge” in providing insights to business leaders.
The report, authored by research analyst Shagun Bali, delves into the potential benefits offered by blockchain technology to capital markets and surveys the leading industry players. As the blockchain would eliminate inefficiencies, she asserts that the blockchain’s adoption across capital markets “is now seen as a matter of ‘when, and not if.’”
An interesting perspective is the anticipated timelines of blockchain adoption for different classes: for syndicated loans, it may come as soon as Q2 2016; derivatives may take another 2 to 5 years, and equities, at least a decade.
New Cashback Program in FBS TraderGo to article >>
Terry Roche, head of FinTech research at Tabb, explained to Finance Magnates that syndicated loans, whose business processes are highly manual and whose markets are less elaborate, are the ripest for disruption. Stocks and derivatives, on the other hand, have already developed for themselves sophisticated technological infrastructures and regulatory frameworks, and will therefore take longer to revamp.
2015 has seen an explosion of institutional interest in the blockchain, but, perhaps with the exception of some bonds issued by Overstock’s Medici project, all activity is still in the experimental stages.
Another interesting prediction: major clearing houses like Depository Trust & Clearing Corporation (DTCC) and London Clearing House (LCH), which respectively clear a majority of the securities transactions in the US and half of the global interest rate swaps, will not go away. On the contrary, blockchain technology may be employed by these entities to enhance their processes.
The report acknowledges a number of challenges for the technology’s development, including the needs to define industry standards and regulations.