Will Blockchain streamline Securities Lending?

Uncategorized Apr 17, 2017

It seems that newer and more valued developments are going to continue in lieu of blockchain technology in the coming year, and TheBlockchainAcademy.com[1] will make you understand the ways to embrace these for your businesses in 2017. After bringing revolution for a number of industries including banking & finance, global freight and trade, e-commerce, patents, digital regulations, the blockchain technology seems to expand its area around securities lending, all around the world. It can be said so in view of the latest testing case of blockchain system for securities lending, by State Street, which opens a new area of discussion in the course of technology development.

State Street Corporation has recently tested the blockchain system in an effort to streamline its securities lending process, since the financial sector has speeded up its efforts to adopt and apply this emerging technology. The State Street’s senior Managing Director of Emerging Technologies Center, Hu Liang, states that the software that has been tested in 2016 over the span of seven months, can be adopted as one the corporation’s blockchain projects to be executed in the coming year[2].

 It is to be noted that State Street holds the reputation as one of the biggest international securities lending providers and custodians banks. The system that was tested is expected to change the collateral posted by the investor to borrow securities from the corporation’s clients, into a digital token that would be able to be used for other transactions[3]. This would lead to the creation of an immutable digital record of the way collateral is utilized and make it faster and easier for the corporation to return collateral to the account of the borrower, once their lending position had been settled.

The test by such a leading corporation indicates the true potential of the blockchain technology to streamline the area of securities lending in various terms. The objective is to boost the operational aspect of securities lending. There are a number of cases having no automated linkage to execute the return of collateral to its account on its own. The system would be able to decrease manual intervention concerned with the process and make it faster, creating a better record for reporting and regulatory purposes.

The test is just one of the lots of blockchain experiments the company and financial institutions have been pursuing since 2015, as blockchain technology, initially created to develop cryptocurrency, bitcoin, can also help them cutting cost and increasing efficiency. Blockchain is the distributed ledger where each transaction is automatically added, updated and maintained through a network of computers linked over internet, without the involvement of any trusted third party[4]. Banks and financial institutions are convinced of the idea that blockchain can be adapted to streamline processes like securities clearing and settlements. For instance, Euroclear, a Brussels based post trade provider, also announced this week the successful completion of a pilot for its new blockchain related London bullion settlement service. The company expects to make it go live in the coming year.

Another prominent case that evidently highlights blockchain technology potential to streamline securities lending, is of IBM. In May 2016, IBM also announced a framework for operating blockchain networks safely, as well as novel services on the IBM cloud, which were designed to meet existing security and regulatory requirements[5]. In addition, IBM has also been working with leaders like BNY Mellon to speed up the designing and development process of its unique application for securities lending, by using a blockchain network for trading and transferring the assets.

With such new initiatives being taken by the leading organizations to streamline and enhance their securities lending portfolio and related operations, blockchain seems to bring newer tools for faster, secure and more standardized ways to be used in this sector, which would add more meaningful cases to the application of the technology[6].

[1] TheBlockchainAcademy.com

[2] http://www.reuters.com/article/us-state-str-blockchain-idUSKBN14A23X

[3] https://www.ipe.com/reports/special-reports/securities-services/securities-services-blockchain-a-beginners-guide/10014058.fullarticle

[4]http://www.zyen.com/Publications/The%20Impact%20and%20Potential%20of%20Blockchain%20on%20the%20Securities%20Transaction%20Lif....pdf

[5] http://finadium.com/bnym-working-on-blockchain-for-securities-lending-with-ibm/

[6] http://www.econotimes.com/Financial-services-giant-State-Street-trials-blockchain-technology-for-securities-lending-463036


Copyright 2017 Bryant Nielson.

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