Wholesale financial services has attracted more of the talk and the very early “walk” of blockchain use cases. 15 months ago when I officially committed to Fintech content creation in Capital markets and Wealth management; I was cautious not to discuss blockchain (still not included in Word’s standard dictionary). I’ve been listening to understand and not revert to centralized thinking instantaneously.
Blockchain projects in financials institutions are now being launched and the dollars spent are surging. Consortiums are popping up everywhere.
Use cases are emerging in wholesale finance.
Proof of concept (POC) is where these processes are at.
I will dive into to the current use cases in securities issuance, new marketplaces and provenance. Tomorrow I will focus on Smart contracts, because they own the lion’s share and of course complete coverage of post-trade processing.
I will also share with you very few of my favorite “blockchain in wholesale finance” quotes-picks from the press. These business journalists are having a feast.
Blockchain use cases for issuance of equity and debt
Shares and bonds issued on a blockchain, actually gives me goosebumps having spent my career in broker-dealer institutions. The first attempt to move the capital structure on some blockchain infrastructure, whether with or without using tokens, is reality.
The T0 platform issued the first Overstock cryptocurrency bond. The Medici project announced the first circular offering (June 1, 2015) of a private bond issued by Overstock (Nasdaq: OSTK) and settled and cleared on the TØ.com platform. We covered this event in detail in The Overstock crypto-currency bond: a TIGRcub to settle and clear on TØ.com. Private bond issuance doesn’t require regulatory approval but equity issuance does. Patrick Byrne before year end of 2015, obtained approval from the SEC so that Overstock can issue public securities on the
Before 2015 ended, Chain a blockchain technology company became the first to issue shares on the NASDAQ Linq platform. Nasdaq claims to be the first to facilitate private share issuance on its blockchain technology, Linq. Nasdaq is very much focused in developing apps in the post-trade area through Linq (to be discussed more tomorrow).
For this transaction, Nasdaq enabled the issuer to digitally represent a record of ownership using Nasdaq Linq, while significantly reducing settlement time and eliminating the need for paper stock certificates. In addition to its equity management function, Nasdaq Linq also provides issuers and investors an ability to complete and execute subscription documents online.
Just a few days ago, Bank of Ireland and BNP Paribas made an announcement about their work in progress under the guidance of Deloitte (who launched last summer their own blockchain platform Rubix). They state that they have completed a joint proof of concept on how to use the blockchain technology to “combine the technology with their existing systems to provide new client experience and regulatory oversight at a lower cost.” Vague as it is, it is followed with a declaration from BNP Paribas who plans to:
“ run a pilot scheme conducted with crowdfunding outfit Smart Angels (a French online angel network) that will allow private companies to issue securities on the primary market and give investors access to the secondary market using blockchain technology.”
Smart Securities issuance:
Symbiont and NASDAQ are arguing for the claim to fame of the first issuance. Overstock is first clearly with a private bond. Symbiont, another blockchain tool provider, not only has trademarked the Smart Securities term but also announced the first issuance on Aug. 2015. And the debate remains trapped in the definition of a financial security. Symbiont Issues First ever Smart Securities™
Use cases are focused on private securities because of liter regulation; equity, bond, smart contract (generic) are the three asset classes for now; Linq, Chain, Symbiont, and T0 are involved; the SEC has approved public equity issuance for Overstock on one platform. All these use cases are US based.
In Europe, Ireland and France are collaborating and the first “collaborative test” between an online angel network and a financial institution has been logged.
Blockchain use case for ownership registry and information sharing
Swizterland is the favorite country for blockchain startups (many reasons that make it attractive, from regulatory structure to data security and energy costs), and Australia, is the favorite continent for use cases in wholesale financial services.
In the end of April, Computershare, an Australian stock transfer company, a keeper of legal records, announced a joint initiative with SETL to establish securities ownership registers using blockchain technology. Computershare provides corporate trust, stock transfer and employee share plan services in a number of different countries. The initial phase will engage a broad group of participants and will be used to build on SETL’s existing working prototype for transferring ownership of securities. The result is expected to be an open platform. This is a security and cryptography focused project that is just launching.
Under the European partnership mentioned above, BNP Paribas Securities Services is developing a blockchain-based share register which will automatically register financial securities issued by SmartAngels client companies.
In the end of March, The Depository Trust & Clearing Corporation (DTCC), the US clearing and settlement securities company, announced a partnership with startup Digital Asset Holdings, focused on managing repo agreements. This is not about moving digital assets. Focus is on Sharing Information on transactions (rather than transacting) between those involved in repos
Use cases are again focused more on private securities but also OTC. More going globally.
Blockchain use case in creating new decentralized open source marketplaces
A very ambitious vision is fueling a Swiss startup, Lykke, that aims to create a global open source marketplace to trade with immediate settlement and direct ownership. The community is crowd sourced, the code too. Initially the marketplace is focusing on foreign exchange but will expand to money market instrument, bonds, equities.
Also, Lykke shares are issued in the form of colored coins on the blockchain. Another case of private issuance that is not publicized.
Hopefully, this wasn’t Greek to you all. Matt Levine on BloombergView says: “…if you are any sort of self-respecting financial or finance-adjacent professional these days, you had better be inserting the word “blockchain” into random sentences to prove that you’re up to speed.”