Is Blockchain Shaking Wall Street Capital Transactions?…

[Digital Today Reporter Hwang Chi-gyu] Credit Suisse, a global investment bank, recently traded some US stocks using Instinet, a securities brokerage under Nomura, and blockchain. Although the transaction was conducted on an experimental level, depending on the results, the US Securities Depository Trust & Clearing Corporation (DTCC) monopoly structure may be shaken.

The Financial Times (FT) of the UK also reported on the 8th (local time) that it was paying attention to the actions of Credit Suites and Instinet.

The transaction between Credit Suisse and Instinet using a blockchain shared digital ledger took only a few hours. It takes two days to use DTCC, which means that the transaction was completed much faster using the blockchain. In this regard, FT also used the analogy of the financial version of moving from conventional mail to fast email.

Wall Street financial companies have now used DTCC, an external agency, to transfer assets, deduct differences, and reap margins. However, Credit Suisse and Instinet handled this process directly by recording transactions on the blockchain.

Of course, it is premature to see both companies’ projects as a result that will bring about a big change right away. FT also drew a line that the transaction between Credit Suisse and Instinet is remarkable, but it does not mean that finance will soon move to the blockchain. He pointed out that there are still some regulatory and technical challenges to overcome.

This project was conducted in the form of a small pilot. The Securities and Exchange Commission (SEC) of the United States admitted a no-action letter to Paxos, a blockchain specialist, for this project. It wasn’t official approval.

However, Paxos is attracting attention as it is trying to apply for a permanent license from the SEC to compete with DTCC. It is unclear whether the SEC will give an OK sign, but if it becomes a reality, a paradigm shift may occur regarding liquidation of transactions between financial companies. DTCC processed a $2150 trillion transaction last year alone.

Government regulators have recognized DTCC as a de facto monopoly over the past 40 years. It was to ensure that the transaction was not invalidated or that confidence in the market was not violated.

However, some point out that the current situation of relying on DTCC to liquidate transactions is anachronistic. Problems are that liquidation takes days rather than hours, that a large back office is required to process transactions, and that financial groups are subtracting fees. During the liquidation process, FT reported that the exact ownership of the collateral is also uncertain.