Trading with stocjs as well as with other securities has always involved a large number of intermediaries. And though the very operation of sale if a stock takes a nanosecond now, all post-trade operations take on average three days: the seller and the buyer send requests to the broker, brokers confirms the requests, the order further agreed goes to financial settlements center, only then there is an execution of requests already in the status of the contract. These are only post-trade operations, and there is also an exchange further down or up the road.
Blockchain technologies aim to remove intermediaries, and it is first and foremost due to this feature, they are applied to stock trade.
A record on a blockchain in combination with a smart contract allows to create a representation, a digital dobbeltgænger of the underlying financial asset. So much has the market makers figured out.
But blockchain allows to perform all post-trade operations: clearing, settlements, reporting, transfer and final calculation. Distributed apps can take care of itm blockchain.
A reliable decentralized ledger gives to both the seller and the buyer an opportunity to confirm the transaction, it accelerates clearing, considerably increases the speed of calculations and removes brokers on both sides.
There are also more advanced blockchain based solutions. They are based on closed blockchains to connect brokers with clearing firms. Brokers place orders in form of smart contracts, approval and execution of the transaction is automatic in this model. On the other side of the buyers pay directly and only those amounts that have been entered into blockchain.
The distributed ledger may verify shareholder’s rights, to guarantee immutability of the records. Also, human error is minimised here.
In the near future, blockchain technologies will influence very core functionalities of stock . The exchanges will become decentralized in the sense that after implementation of a blockchain the need for any central system of data together of supply and demand will disappear. The exchanges represent servers also now, but after transition to a blockchain their work will happen on huge number of the computers united in the decentralized network which will work worldwide. The only reason it is not adopted everywhere now, is shortage of blockchain developers.
Nevertheless, blockchain technologies already actively are implemented at various stock exchanges across the world.
Such powerful players in this market, as Nasdaq (NDAQ) and Intercontinental Exchange (ICE) which belongs to NYSE, in several years invested huge money in development of blockchain technologies. ICE spent over 1.1 billion dollars to create Bakkt, a scalable open platform to trade digital assets. One more interesting project, tZero, a subsidiary to Overstock.com. The CEO of tZero in an interview to the author of these lines told that they are also going to give to investors an opportunity buyers not only actions, and any digital, i.e. tokenized assets.
At the beginning of 2015, Nasdaq announced development of own Nasdaq Blockchain Ledger technology for its first client by Chain.com, and in May, 2018 Nasdaq and Citi announced launch of an integrated payment solution based on a decentralized register.
Another pioneer in the market of blockchain technologies for stock trading is the Australian exchange ASX. In 2015, the ASX team decided to develop a new blockchain-based system for electronic clearing.
The Japanese Japan Exchange Group (JPX) began to test use of blockchain technologies together with IBM, they are interested in transition to a blockchain in the markets with low intensity of trade or for increase in liquidity.
The Exchange of Korea launched an initiative together Korea Startup Market (KSM) to trade on blockchain stocks of startups?
The German financial and exchange Deutsche Börse Group also made a number of considerable investments into blockchain ‘state-of-the-art’ services, one of the recent major projects being a solution for cross-border transfers of securities in cooperation with Liquidity Alliance.
India: tests of blockchain technologies at the nation’s largest banks – IDFC, Kotak Mahindra, ICICI, IndusInd and RBL – were carried out at the Indian state run exchange NSE, in the sandbox modes.
The Moscow Exchange, MICEX, implemented the system of blockchain based voting for holders of bonds in the National Depositary.
The most interesting blockchain experiments in post-trade operations are currently being conducted by London Stock Exchange.
As per mid 2019, At early stages of implementation, blockchain technologies function at exchanges of Luxembourg, Santiago, Toronto.