How Blockchain Aids Stock Market Trading

How Blockchain Aids Stock Market Trading

By Capital Markets CIO Outlook | Thursday, February 20, 2020

How Blockchain Aids Stock Market TradingThe introduction of blockchain to the stock market will make trading highly transparent and devoid of transaction errors.

FREMONT, CA: Blockchain was initially intended just for bitcoin transactions. However, the technology has gradually made inroads into a number of industry verticals. The transparency and empowerment promised by blockchain due to the distributed ledger system have been the major influencer for the industries. When it comes to adopting blockchain, the finance sector seems a natural fit. While banking institutions are rapidly boosting their exposure to blockchain, stock exchanges across the globe is also exploring the ways through which they can leverage the technology.

The functional aspects of a stock exchange have been extremely complex as well as time-consuming. The multi-layered processes involving trade, pre-trade, post-trade, custody, and security services are highly ambiguous. Further, such a system generates high costs and adds to the time required for transactions to complete. The presence of multiple financial intermediaries further adds to the woes of the investors. Blockchain can address many of the above challenges.

Key transaction-related processes like trading, issuing securities, clearing, and settlements can be handled without much friction with the aid of blockchain’s distributed ledger. The transaction hassles, coupled with the perceived opaqueness of the stock market, can be eliminated with the aid of blockchain. Smart contracts powered by blockchain would dispel doubts as to whether transactions have been made correctly. The usage of smart contracts can also limit the number of intermediaries involved in stock market trading.

Further, blockchain can also make stock exchanges much more optimal via automation and decentralization. It can help offset huge costs levied on customers in terms of commission while hastening the process for quick transaction settlements. The technology can offer viable advantages in clearing and settlement, while safely automating the post-trade process, thereby minimizing paperwork of trade as well as legal ownership transfer of the security.

While it’s still early to predict if blockchain will capture the dynamics of stock-trading or not, the numerous benefits offered by the technology certainly make it popular among the traders.

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