As NASDAQ is gearing up to become the first exchange operator to utilize blockchain technology by the end of this year, a newly published report by financial industry consulting firm Greenwich Associates suggests that the tech-exchange might just be setting a trend. The consulting firm predicts that blockchain technology is coming to the financial markets in a big way.
In order to get an idea of the level of awareness and understanding of blockchain and blockchain-like technologies, Greenwich interviewed 102 institutional financial professionals over the past couple of months. Nearly all of these professionals – 94% – believe distributed ledger technology could be applied in institutional markets, while almost half of them are actually reviewing the technology within their firms already.
Commenting on the findings, Head of Greenwich Associates Market Structure and Technology Practice, and co-author of the report, Dan Connell, said:
“In both par loans and collateralized loan obligations, a month-long settlement cycle is common and often includes the use of a fax machine. […] For a market so obviously in need of technology, it makes sense to implement improvements with the latest tools and approaches available, like blockchain.”
While the motivations for adoption were varied, Greenwich points out a few major themes common across the study participants. Most importantly, the industry professionals took interest in blockchain technology because they believe it could reduce risk, and in particular settlement, counterparty and custodial risk. As such, over-the-counter derivatives, private stocks, repurchase agreements and loan markets are seen as the most likely trading categories to benefit from blockchain-like technology.
Like many financial firms, however, Greenwich seems to see little value in bitcoin as a currency. In the report, the firm even ponders if it would be possible to separate the currency from the blockchain. In the report's introduction, Greenwich writes:
“It is not Bitcoin* itself that has the potential for changing the institutional capital markets, however. The blockchain, the technology that allows Bitcoin* to exist and be transferred safely without an intermediary, presents a much bigger opportunity for financial services firms.”
The conclusion of the report followed with:
“A number of hotly debated questions remain unanswered regarding capital markets’ adoption of distributed ledger technology. Can Bitcoin* and the blockchain be separated effectively? Can private blockchains operate without losing the benefit of the public blockchain?”
*[Author's note: While Greenwich writes Bitcoin with a capital B, it is clear from the context that this refers to the currency, not the network or protocol.]