DLT in Securities: Worlds 4th Largest Exchange Investigates

use of DLT in securities marketDistributed Ledger Technology (DLT), the technology that is the basis for blockchain systems, is being seriously considered by one of the world’s largest securities traders – the Shanghai Stock Exchange (SSE). The SSE believes there is the possibility of a real use case for DLT in securities markets.

A paper published by the SSE yesterday details its analysis of the technology and how it can be implemented at various stages of securities transactions. Benefits derived from the use of DLT in securities could aid in making settlements more efficient as opposed to the current model – which can take over a day to clear transactions.

Benefits of DLT in securities

It’s a common problem amongst traditional financial systems that orders need to pass some restrictive procedures before they can be executed. The immutable nature of a blockchain removes the need for these manual checks and greatly improves processing time.

The paper further looks into other elements of how DLT in securities could improve additional financial processes including pre-trading, post-trading, issuance, customer registration, and settlements.

The Shanghai Stock Exchange is the world’s fourth-largest exchange by market capitalization with a valuation of over USD 5 trillion, making it an ideal institution to really test the true benefits that technology like DLT could bring to the securities market.

IOTA has been a key player in the adoption of DLT worldwide, hosting a DLT conference in Shanghai last month and recently promoting DLT integration in Europe.

Regulation of DLT in securities

As with anything in the financial world, regulation is a key factor in the adoption of new systems. The research paper points out that to successfully deploy a DLT system in the securities sector it would need to show a significant improvement on the current centralized systems that maintain registration and settlements.

The SSE is a non-profit organization regulated by the China Securities Regulatory Commission and at present uses a third-party company to act as an intermediary for settling transactions post-trade. If using DLT in securities transactions could prove the need for such an intermediary redundant, it could go a long way to highlighting the technologies true worth and cost-saving benefits.

The study concludes that incorporating DLT in securities has potential that could be crucial to the evolution of financial markets. However, it’s still a long way coming. A new legal framework would have to be drawn up by regulators and approved by government agencies – a process that doesn’t happen overnight in China.

Last month, the Central Bank of England (BoE) became one of the first in the world to accept DLT technology into its processes.

Mark Hartley is an IT specialist, freelance writer, keen traveler, and blockchain enthusiast. He has worked on the trading floors of the world’s biggest interdealer broker in London and helped integrate crypto-services into IT trading systems. When he’s not searching for the world’s most beautiful beach, he’s nose deep in any crypto and blockchain related news.