Japan Exchange Group, operator of the Tokyo Stock Exchange will begin experimenting with blockchain technology for post-trade solutions such as clearing and settlement of trades. The operator will team up with IBM Japan for the project.
The operator of Asia’s largest stock exchange is joining IBM Japan to run blockchain tests for clearing, settlement, and other operations.
According to a report by Nikkei Asian Review, the proof-of-concept testing will commence next month in March. Currently, the Japan Exchange Group’s record-keeping platform stores trading data on a centralized server. The top-down record-keeping setup requires comprehensive network investment to run efficiently and the blockchain solution is seen as a means to lower costs.
The technology will first be tested in an artificial sandbox environment on sample securities. The environment will replicate clearing and settlement operations to assess if they are recorded accurately. The results of this initial phase will be included in a report that is due in the summer.
If successful, the operator will consider implementing the blockchain-based system for private equities and other low-turnover instruments. Current distributed ledger technologies are deemed inadequate by lacking the processing power required to keep up with rapid trading of listed shares.
Interest in blockchain technology among stock exchanges is quickly becoming the norm in recent times.
The most prominent example of a stock exchange endeavoring to invest and embrace blockchain or distributed ledger technology is that of the Australian Stock Exchange (ASX). ASX managing director Elmer Funke Kupper had previously hinted for months that a distributed ledger might replace the ASX’s current Clearing House Electronic Subregister System (CHESS).
In December 2015, Kupper stated:
We’re having a very close look at this (blockchain technology). The timing is almost perfect. Where blockchain can make an enormous difference, we’re having a look at whether this is a way to transform our equity markets.
Come January, the ASX paid AUD $14.9 million for a 5% equity interest in New York-based blockchain technology firm Digital Asset Holdings (DAH). The ASX also revealed that DAH would help in testing distributed ledger technology in tandem with CHESS before replacing the current system.
In October 2015, Nasdaq revealed Linq – a blockchain-powered trading platform that enables private companies to trade their shares, even before the companies go public. The end of 2015 saw the issuance of a Chain.com share toward a private investor using the blockchain trading platform, Linq. Noting the occasion, Nasdaq CEO Bob Greifeld called the transaction “a major advance in the global financial sector” while stating that blockchain technology carries the opportunity to “forever alter the future of financial services infrastructure.”
In Europe, a working group led by the London Stock Exchange that comprises of financial institutions such as UBS, Societe Generale and others began looking into blockchain applications for securities trade settlement in November last year.
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