Blockchain can change equity trading for the better


Credit Suisse and Numura have gotten the title lately for all the wrong reasons. But in their billions of dollars in losses Archegos defeat, Nested a Snippet of very different news This could have a profound effect on the future of money.

This week Credit Suisse cut some U.S. equity trades using blockchain with Nomura-owned broker Instinct. This technology was previously used to verify other types of transactions. However, these trades were a “first” because the American Depository Trust and the Clearing Corporation, usually industry-owned utilities, do not deal with stock trades within two days.

Think of it this way, if you live as a financial version of the move from snail mail to gippy emails. Wall Street currently uses a third party, DTCC, to transfer assets, perfect balances and collect margins to protect against losses. But now Credit Suisse and Instinct have worked directly with each other to record trades in shared digital accounts and more quickly too.

Is this revolutionary? Not yet. The transactions were a small pilot and it only happened because the Securities and Exchange Commission gave blockchain expert Paxos a temporary “no action” letter, meaning the invention was tolerated but not officially approved.

Paxos Now the application is made For permanent SEC license to compete with DTCC. It is not clear whether the SEC will agree, or whether Paxos may even be able to snip on the DTCC’s behemoth heels, which Handle 50 2,150tn Trade value last year. Emmanuel Aidu, head of digital marketing at Credit Suisse, observes: “Blockchain technology is an innovation. [still] Growing. “

Still, investors should take note. For one, the agreement reminds us that cryptocurrencies like Bitcoin have more technology that uses technology to block crypto insiders. Clearly, this point needs to be loudly promoted as to how Bitcoin attracts so much public and political attention.

I can bet big bucks on any currency that innovations without bitcoin will eventually become much more important. In fact, Piper Sandler, an investment bank, estimates there are already about 4,000 financial assets and processes in blockchain technology.

Second, if the settlement process embraces the blockchain, it can have far-reaching effects. Regulators have granted DTCC effective monopoly for four decades. The main reason for this is protection: to ensure that businesses are not isolated and that confidence in the market is diminished.

That’s fair enough. However resilience is increasingly showing anaerobic disposal takes a few days instead of a few hours. This requires large back-offices for processing deals and enables financial groups to waive fees. This transmits other risks: During the settlement process, the specific ownership of the securities remains in limbo.

The two-day delay could result in shifting margin calls to financial players, as was the case during the meme share stock trading drama this year. Vlad Tenev, the head of the Robinhood trading platform, and Ken Griffin, the founder of Citidel Security, were Anger They are pushing to break the TTCC’s monopoly.

“It’s an incredibly inefficient way to handle it,” Charles Casarila, Pax’s chief executive, told me, adding that the capital was tied to টি 15 billion to 30 30 billion and double the liquidity in DTCC systems.

Conversely, using blockchain can reduce the need to post securities required to protect against risk when settling a business. Feo must read.

The third point is that if this experiment is stopped, it could be cooperation rather than conflict. Paxus prefers to present himself as David as a coarse financier challenging Galith. However, Casarila informed me that Pax has a depository account with DTCC on a regular basis and DTCC is now conducting internal audits with Blockchain.

Moreover, DTCC has recently issued one Thoughtful white paper If all its members approve, it proposes to use existing technology to spend a one-day settlement by 2023.

Silicon Valley entrepreneurs may ridicule that it is still too bold – especially since the DTCC has now acknowledged that it could shrink settlement time if it wants to. Crypto-enthusiasts further say that promoters have very little incentive to innovate quickly, if they can cut fat fees. Dan Schulmann, chief executive of PayPal, told me: “Financial rates are rising worldwide. [on payments] It has been 2.8 percent for 10 consecutive years, which is ridiculous.

So the Credit Suisse-Instinct deal is significant. This does not mean that the funds will soon go to any rapid blockchain, as liberals are hoping. There are still huge regulatory and technological challenges to overcome. Not everyone wants even a skinny world: if instant settlement, financial players could And the business is off the net, Forcing them to fund the advance agreement.

Nonetheless, another example of how the social perception of how this agreement looks “normal” in a digitized world was questioned during the epidemic, and how it could change. The two-day settlement system is such a Shivboleth.

The possibility of changing this process is something we can all applaud. It shows how competition, or its threat, can introduce more efficiency and hopefully the risk is even lower.

gillian.tett@ft.com



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