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Capital Markets and Blockchain Opportunities Emerge

One day, blockchain applications will be as common as the Cloud. Yet, after a fanfare of expectation in 2014, blockchain applications are only now starting to take shape.


As firms look to reduce costs and improve their return on capital, the inherent efficiencies of blockchain have fueled the search for relevant use cases. Firms are now shifting from the planning stage to the implementation stage – and 39% of larger financial firms are actively implementing blockchain initiatives.

All financial firms Firms > $50B Assets
Not considering 40% 16%
Planning 37% 45%
Early implementation 11% 20%
Mid implementation 9% 14%
Advanced implementation 2% 5%

Source: Broadridge Next-Gen Technology Pulse Survey

The real value of blockchain comes from the network

The expected revolution has become more of an evolution for a simple reason: you can’t implement blockchain by yourself. At its core, blockchain is a distributed ledger—a database of shared records between two or more parties. Details are verified, locked-in, and synchronized. This eliminates the need for third-party recordkeeping and redundant effort.

For Capital Markets firms, value is derived from having a network of participants and trading partners. Designed in a way in which everyone benefits, this network offers better security, increased transparency, and more efficient business processes.

The near-term mantra: efficiency, efficiency, efficiency

In general, firms today are not searching for dramatic change. Instead, they are identifying pockets of inefficiency within current business processes. Blockchain is not an end goal. It is part of a broader digital transformation effort—and it is growing in use. Clearly, Capital Markets firms are not alone in this push. A recent Fortune Business Insight report notes that the blockchain technology market will reach $21 Billion by 2025.

Some applications are being developed directly by market participants. Large institutions, including Vanguard[1] , JP Morgan[2] , and Bank of America[3] , are investing heavily in emerging technologies. Strategic partnerships are also common, with recent successes seen in securities lending, trade finance, and credit derivatives. The third primary avenue are technology firms who bring an existing network of participants. This includes consortiums, financial exchanges (such as ASX), and mature Fintechs (such as Broadridge).

When you examine the range of blockchain applications in development, you find a common thread: Everyone is looking for immediate payback. Three factors can drive these savings:

  • Shared database. All participants have access to the same verified, immutable data. This eliminates the need for multiple recordkeepers and helps reduce errors.
  • Digitization of assets. Firms can now trade “tokens” – a digital representation of the underlying assets – eliminating the need for costly and time-consuming transfers.
  • Smart contracts. Terms and agreements are embedded within the blockchain, which helps automate processes with speed and precision.
Firms are exploring use cases across a range of applications.
Credit Derivatives
Equities Trading
Foreign Exchange
International Payments
Know Your Customer
PE Fund Administration
Repurchase Agreements (Repos)
Securities Lending
SRD Disclosures
Trade Finance

Case in Point: DLT Repo

One example is DLT Repo, which relies on distributed ledger technology to simplify and streamline repurchase agreements. Recognized by Financial Technology Forum as the Best Blockchain Initiative of 2018, this solution enables buy-side and sell-side firms to enter, agree, settle, and clear all repo activity with a single source of truth.

By synchronizing workflows, DLT Repo opens the door to millions of dollars in savings – and more.

Hard-dollar savings:

  • Fed costs
  • Operational costs

Operational efficiencies:

  • Eliminates reconciliations
  • Streamlines trade lifecycle management
  • Mitigates the high cost of disputes and fails

Reduced risk:

  • Creates a secure record of trade details
  • Manages lifecycle activities
  • Automates tracking
  • Eliminates manual interventions

Broadridge helps accelerate these savings by combining an existing client network with a deep understanding of Capital Markets processes.

Longer-term: Transformation and disruption will become the norm

At some point, blockchain will settle in as industry standard. Firms will explore market-changing use cases and applications, shifting their focus from cost savings to revenue building. Blockchain participants will be able to engineer new forms of fractional ownership—potentially expanding the market for hedge funds, REITs, pre-IPO securities, and other asset classes.

Be ready today and tomorrow

With our size and scale, Broadridge is uniquely positioned to be the on-ramp to blockchain and other emerging technologies.

This past year, Broadridge worked in close collaboration with some of world’s largest global financial institutions, launching a blockchain-based industry solution to address the new disclosure requirements of Shareholder Rights Directive II (SRD II). Tomorrow, we’ll help firms respond to a host of new challenges.

Every day, we simplify the complex with The ABCDs of Innovation®. It’s how we help our clients understand and apply next-gen technologies—including AI, blockchain, the Cloud and digital—to transform their business and get ready for what’s next.

Footnotes

[1] See: https://www.prnewswire.com/news-releases/vanguard-advances-blockchain-technology-pilot-to-streamline-asset-backed-securities-markets-301074465.html

[2] See: https://www.jpmorgan.com/global/technology/blockchain

[3] See: https://breakermag.com/jpmorgan-and-bofa-lead-race-for-blockchain-banking-supremacy/

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