Blockchain Will Revolutionize 300 Years of Stock Trading: London Stock Exchange

May 2, 2019 06:53 UTC

By CCN.com: The London Stock Exchange (LSE) is weighing the benefits of using blockchain technology for issuing stock and settling trades.

In an interview with CNBC, the LSE chief executive Nikhil Rathi said he was inspired by early blockchain initiatives at other stock exchanges, and sees the benefit of distributed ledger technology:

“You can certainly see distributed ledger technology having an application in the issuance process… I can see that technology being used in settlement too.”

LSE, the world’s sixth-largest exchange, has been surprisingly open to blockchain technology. Earlier in 2019, the exchange led a $20 million investment round in blockchain startup Nivaura.

It’s yet another sign that established financial institutions are warming to disruptive blockchain technology. A new future of trading is emerging. As crypto fund founder Anthony Pompliano claimed, “every stock, bond, currency and commodity will be tokenized.”

Changing 300 years of trading with blockchain

Rathi’s comments hint at a future where stocks and securities are issued via blockchain. In other words, companies would issue a fully digital version of their stock and record ownership on a distributed ledger.

Switzerland’s SIX exchange is already experimenting with this concept by tokenizing some equities. The Gibraltar bourse also tested tokenized versions of corporate bonds.

Rathi also praised blockchain’s ability to improve the settlement process. Although stock trading already appears digital, the underlying process is often still executed via paper certificates. Blockchain would speed up the process and improve security.

Inspired by Australian Stock Exchange?

Rathi is perhaps following the lead of Australia’s ASX. The exchange aims to pivot to a blockchain-based system by 2021.

ASX deputy CEO Peter Hiom cited improvements in efficiency for the move and called blockchain a “very clever architecture.”

Rathi is watching developments at rival exchanges like ASX closely. He said stock exchanges were experiment with:

“[An] Interesting array of different ideas. We’ll see which ones gain market traction.”

London Stock Exchange blockchain investment

The news comes after the London Stock Exchange poured money into a blockchain startup Nivaura. Nivaura is working on fully-automated tokenized bonds recorded on a blockchain.

In April, Nivaura and the London Stock Exchange issued £3 million ($3.9 million) worth of shares on LSE’s test network.

It’s a monumental shift for the 300-year-old stock exchange.

Traditional finance is waking up to blockchain

The London Stock Exchange is the latest in a string of traditional players embracing blockchain and cryptocurrencies.

The New York Stock Exchange parent company is experimenting with a “moonshot” crypto bet to launch bitcoin futures trading. Nasdaq is also launching its own bitcoin futures market while publishing real-time cryptocurrency indices. 

And who could forget JP Morgan’s controversial move into crypto with its JPMCoin? 

For years, the financial world has watched from the sidelines. Now they’re finally waking up and joining in.

Last modified: May 2, 2019 07:12 UTC

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk or on Twitter at _Ben_Brown. Email ben @ benjamin-brown.uk.