By Boon-Hiong Chan, Head of Market Advocacy, Securities Services, Deutsche Bank
In modernising post-trade processes, distributed ledger technology could also bestow new roles on industry participants. Deutsche Bank’s Boon-Hiong Chan assesses three industry initiatives that elucidate how incumbents might evolve.“The street finds its own uses of things” The blockchain technology that underpins bitcoin has inspired the creation of other types of Distributed Ledger Technology (DLT). In turn, the different DLT types are being trialed across the banking and financing industry, including by central banks, to determine if and how new efficiencies, competitiveness and growth prospects can be effectively gained. In the capital markets, early experimental results have been promising and the new technical possibilities are drawing an exciting outline of a digitised and DLT-based future. DLT can potentially be at the core of a modernised post-trade securities services industry that would be distinguished by concurrent and coded-intelligent processing; clearly differentiated from the “paper” era, and the current “automation” era that deploys computers to automate paper-based sequential paradigm flows. As development progresses in the industry, newly gained insights of business model possibilities are also leading to deeper questions such as: what could a future DLT-based securities post-trade industry mean to present day incumbents?; to what extent could the technology disintermediate the industry and how could post-trade incumbents evolve? These are complex questions with interdependent factors that will influence participants’ transformative journeys into new roles and ways of doing things. Some of these factors include the technology used in digital infrastructure, the infrastructure’s new operating models, and laws and regulations. Digital infrastructure can influence new future roles For example, digital assets require a digital environment and infrastructure like common data definitions to operate. The organisation of this environment can shape new roles in post-trade. For financial market infrastructures, a number of leading traditional stock exchanges are already building on the foundations of a modernised industry with a digital infrastructure for digitised securities to thrive. Here, there are broadly three types of efforts: • A walled-garden digital environment, operated by a centralised service provider that will service a digital asset’s “end-to-end” lifecycle activities. This first approach is exemplified by initiatives such as those launched by Deutsche Boerse in Germany, Switzerland’s SIX Digital Exchange (SDX) and the Stock Exchange of Thailand (SET). These are creating new digital exchanges that would handle cryptocurrencies and/or digital asset’s activities, from primary issuance to secondary market trading, settlement, custody and asset servicing i.e. a “horizontally” integrated model that would aggregate a number of key services onto a single platform.