On July 10, 2018, the world’s fourth-largest securities traders, the Shanghai Stock Exchange (SSE) which has a market cap with a valuation of approximately $5 trillion, announced their plans to use distributed ledger technology (DLT) in securities transactions to improve the existing sector by providing the transparency in the security industry with real use cases.
SSE has shown its trust in DLT for the benefits which this technology can deliver and to circumvent the lengthy and restrictive procedures which sometimes take a whole day to clear a transaction before it can be executed. To make more efficient settlements against the existing and conventional model, the immutable nature of a blockchain can significantly improve the processing time and decrease the need for manual checks.
In the report published by SSE the described the strong analysis on the use of technology and its implementation on different stages of security transactions which can be improved by DLT in additional financial processes including pre-trading, post-trading, issuance, customer registration, and settlements.
The SSE is a non-profit organization regulated by the China Securities Regulatory Commission and presently using a third-party international company, Santander, with a dedicated research team that is investigating the blockchain technology in securities handling process. This player is acting 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 toward highlighting this technology’s true worth and cost-saving benefits.
As we all know that regulation plays a fundamental role in the adoption of any new systems and to productively deploy a DLT system in the securities sector it would need to show a significant progress over the current centralized systems that maintain registration and settlements.
Central authorities of China, after the ban on cryptocurrency and ICO’s, appear to also be distancing themselves from blockchain development this year.
It is certain that assimilating DLT in securities trading has a prospective future in the transformation of financial markets. However, to deploy DLT, the amelioration in the existing legal framework is urgently required by Chinese regulators and the approval from the government agencies in order to make progress.