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Applicability of Distributed Ledger Technology to Capital Market Infrastructure

Japan Exchange Group (JPX) white paper.

Virtual currencies such as Bitcoin have become a popular topic of conversation all over the
world. People were initially interested in virtual currency itself, but its underlying technology, blockchain or distributed ledger technology (DLT), has attracted a lot of attention recently from various industries exploring applications other than virtual currency. There is no reason to limit the application of DLT to virtual currency, and the existing centralized consensus process can be replaced by DLT in theory. Due to DLT’s innovative concept and wide range of applications, it is said that it will bring a ‘paradigm shift to the fifth generation’ of IT evolution.

One of the areas attracting people’s attention is the application of DLT to capital market
infrastructure. DLT technical features are considered to be appropriate for the layers of capital market operations especially those for the post-trade process. Some people have pointed out that DLT may replace existing infrastructure for reasons beyond simple efficiency. Global exchanges, CCPs, CSDs, banks, brokers, and market facility providers have proactively explored DLT applications through PoC (proof of concept), and investment in technology providers or participating consortiums.

Cost reduction is one of the potential advantages of utilizing DLT for capital market
infrastructure. According to M Mainelli et al. [2016], the total cost of clearing and settlement processes all over the world has reached 40 billion dollars annually, and most of the cost comes from data reconciliation and manual operations. This cost could be decreased by utilizing DLT in the post-trade process. The Australian Stock Exchange (ASX) has invested 8.5% in Digital Asset Holdings and announced that DLT application is one of the options for replacing its post-trade service infrastructure.

Download below the report.

Mercredi 31 Août 2016