The Global Financial Markets Association (GFMA), a high-profile lobby group whose affiliates include major financial players such as JPMorgan Chase, HSBC, and Nomura, published a report emphasizing the potential of distributed ledger technology (DLT) in securities markets. The report suggests that implementing DLT could result in over $100 billion in annual savings and enhance growth and innovation in the industry.
GFMA calls for regulatory bodies to embrace the opportunities presented by DLT in areas like collateral management, asset tokenization, and sovereign bond markets. With robust regulatory oversight and resiliency measures in place, the technology that supports cryptocurrency could serve as a catalyst for connecting DLT-based markets through a harmonized international framework.
The potential benefits of using DLT in the securities industry are hard to ignore. The report highlights that freeing up collateral from areas like derivatives and securities lending could save more than $100 billion annually from a market worth an estimated $19 trillion. Moreover, utilizing smart contracts to automate settlement and corporate action processes, such as stock splits and mergers, might potentially lower operational costs by $15-20 billion.
However, some skepticism remains about the implementation of DLT in traditional finance. Successful integration would require a harmonized global regulatory framework, which might be challenging to achieve given different countries’ approaches to regulating blockchain and digital assets. Moreover, there is a potential risk that DLT might not fully live up to its promises, leading to less dramatic savings than anticipated, or even increased operational costs.
Despite these challenges, there is a clear shift in attitude towards DLT among traditional finance institutions. For instance, Euroclear, a Brussels-based clearing and settlement firm, plans to release a new platform for DLT bond trading. Additionally, the European Central Bank is exploring ways to improve its financial settlement systems by interacting with decentralized technologies.
Although incorporating DLT in securities markets has the potential to drive significant cost savings and lead to innovation and growth, it must be carefully managed to reap the benefits desired. The successful implementation of DLT in this realm will depend on the development of a harmonized international framework and close collaboration among regulators, traditional finance players, and DLT innovators.
Source: Coindesk
