Four Advantages of Blockchain Technology in Capital Markets

Four Advantages of Blockchain Technology in Capital Markets

By Capital Markets CIO Outlook | Thursday, October 15, 2020

Blockchain-based smart contacts automate trades by releasing settlements only on conditions that the financial details of the banks match, minimizing costly errors from the manual processing of settlement instructions.

FREMONT, CA: Capital markets can significantly benefit from blockchain as a distributed ledger system as it is a sophisticated system where transactions involve buyers, sellers, brokers, and third parties. Blockchain secures data and promotes smart contract that enables the automation of processes.

Here are four benefits of blockchain in capital markets:

Minimize Trade Limit Violations

Banks can maintain compliance with trade limit laws by implementing a distributed ledger and a series of smart contracts. Trades over the pre-determined limit can be reversed or blocked if and when they threaten to violate the smart contracts' terms. Trade infringements can be identified and reported early, saving the bank from fines and reputation damage.

Enhance Trading Integrity

Blockchain solutions provide transparency in equity trading, making it easier for market regulators to identify irregularities like artificial pattern trading. This safeguards the integrity of the overall equity market.

Credit Risk Management

Blockchain can help create a shared ledger that acts as a central database accessible to authorized institutions. It can support a near real-time communication system where involved parties can take proper actions. The combination of blockchain as a stable database and machine learning for automated risk assessment would significantly enhance credit score rating accuracy.

Simplified Trade Settlements

Blockchain-based smart contacts automate trades by releasing settlements only on conditions that the banks' financial details match, minimizing costly errors from the manual processing of settlement instructions.

For transferring securities from seller to buyer, smart contracts allow transactions only to be completed if specific conditions in the agreed-upon contract are fulfilled. It also removes reconcilement problems that arise when transactions are not executed well. Blockchain removed the broker fees involved in the process and protects the two parties from fraud risks.

Weekly Brief