In the context of global innovation, companies strive to adopt digital technologies to accelerate their productiveness and obtain a competitive advantage.
Blockchain has emerged as a vital technology pillar on the way to data consolidation. In today’s digital world, the blockchain solutions granted us ownership over the information that is to stay secure. Distributed ledgers have been adopted by most industries due to its immutable and decentralized nature, which incurs the transformation of legacy systems and leads to greater transparency and validity.
The overall stock market is being tremendously affected by blockchain. Still, there are two main areas of focus: trade clearance and settlement and private equities liquidity.
The securities marketplace faces challenges when a stakeholder votes for remaining private. In this case, an undesirable conflict of interests can arise when a seller, by contrast, desires a public offering.
BFSI Disrupted by Blockchain Technology: Nasdaq, The World Bank, NSD
The blockchain technology is a method of recording and confirming transactions in a decentralized way where parties have access to a complete and immutable record of transactions.
Blockchain allows for establishing synergy between stakeholders, eliminating middlemen, such as lawyers, accountants, notaries, government institutions. All the necessary information is included in a smart contract—a protocol that is used to facilitate and verify transactions in a secure manner.
With the adoption of smart contracts, businesses streamline their processes by making the complex trading procedure less time-consuming, cost-efficient, and risk-free.
According to the recent blockchain market research, governments, as well as large enterprises, are investing significantly in the development of blockchain-based solutions and platforms, especially in the emerging industries such as banking, financial services, and insurance (BFSI) that, along with other services, include investments and stock-broking in particular.
Today, there are hardly any doubts that all the equities are likely to be tokenized in the future, and the process of issuing and settlement will be faster, more secure, and decentralized. Nasdaq, Australian Stock Exchange, the New York Stock Exchange, and other stock market players, are among the early adopters of the technology. Nasdaq—the second-largest stock trader in the world—put all its efforts into the blockchain technology adoption to make its own transactions secure and facilitate purchasing of securities.
Blockchain Solutions for the Bond Market
Blockchain has also affected the bond market. The technology is set to eliminate all the associated formalities as private companies, as well as official institutions, are able to issue bonds in the form of token securities. This way, the process of managing the life cycle of bonds—from issuance to settlement and trading—becomes more efficient and secure.
Here are the examples of two leading financial organizations that successfully implemented blockchain-based prototypes in their business processes.
National Settlement Depository (NSD)—a central securities depository of the Russian Federation—wanted to build a blockchain infrastructure for an innovative product. As a result, NSD requested to develop a blockchain-based platform for issuing bonds worth $10M. Built on Hyperledger Fabric, the system ensures the confidentiality and transparency of transactions, allows for reducing expenditures made by the bond issuer, securing cross-datacenter communication and minimizing thus the risk of fraud. The blockchain solution for financial services automates securities transfer, providing immediate access to a company’s up-to-date portfolio of securities on a trading platform.
The World Bank and the Commonwealth Bank of Australia (CommBank) united to launch bond-i that enables recording of secondary market bond trading using the blockchain technology. The solution allowed for cutting issuance costs, speeding up the issuance operations, reducing settlement and counterparty risks, as well as mitigating prices volatility.
Blockchain Technology for Financial Services: Use Cases
Blockchain can be applied in the financial sector in multiple ways. In this section, you can explore some prime scenarios where the technology is used to transform the financial industry.
The blockchain technology can speed up the process of transferring funds in a decentralized way. Cutting operational costs, peer-to-peer (P2P) networks verify and process transactions across several time zones in seconds.
Smart contracts emerge as a go-to solution in the over-the-counter market where off-exchange trading is done directly between two parties, excluding supervision. The example of a marketplace for P2P trades represents a dashboard for indicating bids and offers with P2P deals recorded in chronological order. The functionality implemented in the PoC allows for creating immutable and transparent ledgers and “private collections” based on Hyperledger Fabric so that traders can track aftermarket cash flows, as well as the interest status.
Clearing and Settlements
Today, transactions have to undergo a three-step clearing and settlement process. The cycle involves complex processes and requires complete convergence of the parties involved across the global trading system. Blockchain has the potential to transform this process and make it automated and smooth.
Blockchain is capable of revolutionizing the financial industry as it opens new opportunities for investing in blockchain-based developments. The technology enables financial organizations to achieve a high speed of settlements, enhance peer-to-peer transactions, reduce counterparty risks, increase the overall transparency of operations, and mitigate human error.
Traditional finance institutions are readily supporting research centers as well as in-house innovative labs to embrace and develop the blockchain platform. Moreover, companies are willingly asking third-party vendors to help them to start off their blockchain journey with fully-managed blockchain services for business.