How Blockchain is transforming financial markets


Blockchain technology offers great alternatives in the field of stock brokerage, and its influence on the markets is already significant. From the establishment of intelligent contracts to the reduction of defaults in the negotiation limit.

Some of the main international financial institutions are betting on the implementation of blockchain technology as a technological alternative, benefiting from improvements in technology-based processes that allow for the reduction of time, costs and increased transaction security.

How can blockchain help manage information from financial institutions?
Banks and other financial institutions have increased their investment in technology and innovation in recent years, aiming to simplify and reduce the costs of back-office processes.

Proof of this is that the Australian Securities Exchange (ASX) has announced that it will change its clearing and settlement system to a new system based on blockchain technology. This will reduce costs for your customers and the development of new services. In addition, you will achieve greater market efficiencies through better record keeping, transactions and better quality data.

The Australian federal government supports the ASX’s commitment to the implementation of this technology, which will strengthen the national financial system through greater efficiencies; supporting innovative initiatives to ensure that Australia is at the forefront of technology in the financial markets and is competitive globally.

Another official body, the Canadian Securities Exchange (CSE) has also developed a blockchain-based clearing and settlement platform, which reduces risk for investors, distributors and customers by ensuring that exchanges are settled immediately.

The development of this platform is the meeting point between blockchain and the financial markets, enabling a revolution in conventional transactions and record keeping mechanisms.

CSE, Blockchain.
Within the market sector, the distributed accounting system offers great possibilities for non-affiliated operators, but it is not the only area of impact. The benefits of Blockchain in the business lifecycle for the capital markets are countless, especially affecting post-trading.

But blockchain is already being used in other areas of the financial sector, such as Smart Contracts, such as Swaps. With the creation of intelligent contracts, you can apply it to extrapolate specific data or carry out specific instructions if certain parameters are met or activated.

The smart contract allows automatic payment processing only if certain requirements are met within the agreed contract. As a result of intelligent contracts, the costly errors of manual processing of settlement instructions can be significantly reduced.

Since all parties will have access to the same data, the benefit of transparency would eliminate the need for manual settlement confirmation, thus reducing the reconciliation problems that often arise when transactions are not carried out correctly.

Reduction of trading limit violations
Business activity within financial institutions includes transactions initiated to hedge market positions and to hedge existing positions for the bank as a whole in various instruments.

These transactions are conducted with other financial institutions and are complex. Trading limits within an institution are in effect for notional amounts and settlement dates.

There are also limits on the size of the position by intermediaries, as well as for specific instruments including financial derivatives, options, fixed income and currency hedging.

Breaches of trading limits can be very costly for financial firms. Any suspicious business activity that is outside of compliance could be detected and remedied before it negatively affects banks’ position, profits and losses and balance sheet.

JP Morgan and its anticipation strategy
At the end of last year, JP Morgan announced that it was developing a program based on blockchain technology, designed to analyze the data in buy/sell transactions, and group them together with a predictive and preventive utility (analysis of trader behavior).

The general operations proposed by its creators are intended to facilitate the decision making process.

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