Can the Blockchain Work for Securities Finance, OTC Derivatives and Other Collateralized Transactions?

Finadium
September 2015

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Blockchain has emerged as a potentially exciting new technology in financial markets, promising at once to be revolutionary, disruptive and a way to fundamentally change financial services. While proponents may be correct about the technologyʼs potential, the buzz can be confusing; how much of the publicity is hype versus reality for collateralized trading markets including securities finance and OTC derivatives? The time has come for a practical look at how blockchain could be implemented across complex capital market activities including liquidity and capital management.

This report takes a pragmatic approach, evaluating what applications blockchain might have on silos and/or business processes in collateralized trading markets and why. We address core questions including what is required for a successful open or closed blockchain network in institutional financial markets, what existing problems could be more easily or effectively solved with this new “disruptive” technology, and how could the industry gain value. We also separate out bitcoin vs. blockchain, and explain how they differ and intersect from the perspective of collateralized trading markets.

This report has been written for financial market professionals in trading, treasury, liquidity management, regulatory capital management, clearing, custody, operations and technology. This is a general interest report, which presumes little former exposure to blockchain and the ideas behind it. Our intent is to bring readers up to speed with the main concepts, including public conceptions and misconceptions, then explore potential applications connected to the daily business processes at financial institutions today.

This report is 31 pages with 8 exhibits.

TABLE OF CONTENTS

■ Executive Summary

■ The Blockchain in Financial Markets
– Conceptions and Misconceptions
– Requirements for a Successful Blockchain

■ Real Problems That Blockchain Networks Can and Can’t Solve
– Liquidity and Capital Utilization
– Credit Utilization and Exposure Management
– Collateral Optimization
– Corporate Actions
– Maybe Not Such a Good Idea

■ What Will Make it Work?
– Players and Prospects

■ About the Authors

■ About Finadium