Mr Mandeep Singh-Gill (FCO), Dr Lee (Exeter), Dr Naikuang Huang (TWSE)

ESRC seminar on blockchain and capital markets

Dr Joseph Lee of Exeter Law School and Dr Naikuang Huang, Senior Executive Vice President held a seminar investigating the concept of distributed ledger technology and its implication for critical financial market infrastructure (FMI).

Stock exchange interconnection is an innovative way of connecting markets. Based on a British Academy project on stock exchange interconnection in 2016 and an IAA-ESRC impact cultivation project in July 2016, this seminar took a fresh look at interconnection by examining FinTech in the financial market infrastructure industry, in particular blockchain technology. Blockchain technology is a way of creating a network that connects financial market participants.

At this seminar, participants from academia, law firms, securities houses, the FCO’s British Office in Taipei, and the Taiwan Judiciary, examined the following topics:

1. What is the application of smartcontracts in the securities market?
2. What impact does blockchain technology have on the complete life cycle of securities - issuing, trading, clearing and settlement?
3. Who will act as the gatekeeper for the information network (cyber security)?
4. Who will have control and ownership over the network and data generated?
5. Will blockchain technology foreclose financial participation in securities markets?
6. How will blockchain technology affect global capital markets?
7. What are the duties and responsibilities of a director in the automated financial services industry?

The discussion at this seminar not only cleared up some misconceptions about distributed ledger technology but also showed how elements of this technology have military implications. Since the blockchain network has the potential to provide more efficient operation in the post-trade segment as well as for asset management, it can increase financial participation when markets are more distributed rather than centralised. If a blockchain network can be in regular use as a trading network, it can also provide an interconnection infrastructure for capital markets where smartcontracts can be used to execute obligations. Obstacles such as anonymity or latency in trading can be overcome as the technology advances. Much of the development will also depend on whether market infrastructure providers see the blockchain network as an opportunity or a threat. There are still a number of regulatory challenges to be overcome in the virtualisation of capital markets, and new approaches will need to be adopted to deal with decentralised market places.

Dr Lee will hold a follow-up seminar in October in London to explore further issues with UK and European financial market infrastructure providers.

Date: 16 July 2017

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