Fad or Financial Revolution? What’s Really Happening on the Street

Adapting blockchain technology to enhance legacy post trade processing and asset servicing is quickly becoming a reality on Wall Street.

Banks and other financial services firms are investing time and money to determine the best adaptation of blockchain technology into their enterprise strategies.  One example is what’s going-on over at Coinsetter.  Coinsetter, a global Bitcoin exchange based in New York City, recently announced a new venture called “HighLine” that aims to improve how trades across Wall Street are cleared and settled through the application of Bitcoin’s blockchain technology.  Their new “On-Blockchain Settlement” system, attains a never before seen, level of stark transparency. 

 

A ‘Trustless’ System

Currently, most trades in the industry involve numerous intermediaries who reassign ownership of assets utilizing slow, opaque and outdated technology.  They also rely on bank transfer systems to settle payments for trades, which are limited at best.  By introducing blockchain’s transparent, decentralized public ledger into the trade settlement process, Project High Line can provide line-of-sight, view of funds for users, after trades are executed. No middleman, or account balance on a website, will be necessary to verify location or ownership of funds. 

Project High Line supplants old transaction rails, allowing users to opt-in to a system that ensures their funds are exactly where promised.  Coinsetter CEO, Jaron Lukasiewicz, says that the project is a “shift from the status quo on Wall Street”.  It aims, says Lukasiewicz, “to solve the problem of having to place trust in an exchange or intermediary, while also allowing market participants to have full visibility into trade settlement, as well as tangible access to moving their assets 24/7”. ‘On-Blockchain Settlement’ is currently in the process of also binding trade execution directly to transactions on the Bitcoin blockchain.  Important advancements in an evolving industry.

Next Up – Nasdaq 

Nasdaq OMX Group Inc. is also launching an official pilot program, and appointed a ‘Blockchain Technology Evangelist’, V.P. Fredrik Voss, to lead ‘proof of concept’ strategic development for several applications of “blockchain-esque” technology to trading platforms.  If the effort is deemed successful, Nasdaq plans to use ‘customized blockchain technology in its stock market, one of the world’s largest, which would galvanize other market participants and vendor systems to shake up systems that have facilitated the trading of financial assets for decades’*.  According to Robert Greifeld, Nasdaq CEO, “Utilizing the blockchain is a natural digital evolution for managing physical securities.”  The technology, he says, “holds the potential to benefit the broader global capital markets community.” 

 

Nasdaq’s foray is significant because it marks one of the first times a large, multinational financial services companies is leveraging blockchain technology in a non-currency manner.  The company’s first application will provide a fully electronic, distributed ledger-style solution for accurate record keeping, which will ‘modernize, streamline and secure typically cumbersome administrative functions’*.  The pro for its customers, according to the exchange, is that it will simplify the overwhelming challenges private companies face with manual ledger record keeping. 

 

And the List Keeps Growing…

Every week we are hearing about FIs arriving to the blockchain, block party. The New York Stock Exchange and Goldman Sachs Group Inc. are investing in blockchain oriented service systems.  New start-up, Digital Asset Holdings, led by former J.P. Morgan Chase & Co. executive Blythe Masters, like Nasdaq, is also developing a blockchain-based system for settling transfers of securities and funds.  According to Mei Ling Liew, a Managing Principal at leading financial services consultancy, Capco, new requests from clients to help tailor blockchain solutions to meet their needs, and give them a competitive advantage are steadily on the rise.

 

“We are working with clients on long-term, strategic road mapping for design, implementation and cost measurement of blockchain initiatives.,” says Liew.  “At Capco, we saw this revolution coming down the pike for our clients across the financial services value chain.  We purposely got involved early on in helping launch one of the first, and only, U.S. Regulated Bitcoin Exchanges, just to build our knowledge, and contacts, in the blockchain marketplace.  That investment is really paying off.  It feels great working with clients to help them transform their offerings with the application of this inspiring, emerging technology.”