Straight Talk Special Issue: Financial Services - 36

As barriers to trading are
reduced and technology
improves, international borders
become less relevant and
transactions occur at greater
speed. In this environment,
regulators are pushing clearing
houses to strengthen their
security infrastructure.
Blockchain adds a new
dimension to this process by
bypassing the conventional
clearing house stage. Instead,
an ecosystem of what may be
hundreds of enabling
computers, or nodes, register
trusted transactions directly
between the buyer and the
seller. The nodes in the network
are able to independently verify
transactions, and an automated
consensus can authenticate and
register a trade.

Introducing smart
contracts
Because the ﬁnancial services
industry is highly regulated, it is
a challenge to make a contract
interoperable among diﬀerent
systems while complying with
mandated legal frameworks.
Smart contracts enabled by
blockchain technology have the
potential to improve eﬃciency
by reducing the delay in such
regulatory processes as
documentation, KYC, and
anti-money laundering.
In our industry we are seeing
the implementation of private
blockchains to improve
transaction eﬃciency. For
example, something called an
electronic vault receipt platform
enables businesses to access
lines of credit against their
inventories, by pledging these

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36

The Australian Stock Exchange is
working to adopt blockchain technology
as a replacement for its Clearing House
Electronic Sub-register System.
inventories to member banks or
even the clearing houses.
Solutions like this can make the
post-trade process more
eﬃcient by acting as a central
registry of ownership of goods
and validating delivery
obligations for transactions.
Numerous trading and
commodity exchanges are
actively exploring ways of
implementing blockchain
technology to both speed up
processes and oﬀer an added
layer of security.
For example, the Australian
Stock Exchange is working to
adopt blockchain technology as
a replacement for its Clearing
House Electronic Sub-register
System (CHESS). It recently
tested a prototype and plans to
invest AUS$50m ($38.5m) in the
project, with the ultimate aim
of making a transaction and
settlement occur
simultaneously.
In another context, CME Group
and Britain's Royal Mint have
started testing a
blockchain-based platform for
gold trading. The new platform
will enable the trading of "Royal
Mint Gold," or RMG, a new
digital token issued by the Royal
Mint. Each RMG will
represent a
digital

record of ownership to 1 gram of
physical gold stored in the Royal
Mint's vault.

Building an ecosystem
Clearly, these are initial,
incremental steps. Implementing
and standardizing blockchain
technology will cost billions of
dollars.
The adoption process will be
slow and the technology will
remain conﬁned to subsets of
ﬁnancial markets and for speciﬁc
uses, at least for now. The
majority of the organizations
experimenting with blockchain
technology are restricting it to
internal use or to
proof-of-concept trials for the
time being. Such disconnected
solution silos can't demonstrate
the full potential impact of
blockchain.
We are probably ten or maybe
ﬁfteen years away from a global
distributed ledger that is beyond
the control of any
organization or
industry. Still,
these early
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