Digital Market Infrastructure

By James Wall

Looking at the development of retail financial services over the past 10 years and the array of integrated online tools available to make your interaction with your money as efficient as possible, I am left wondering what happened to the Institutional Investor Markets?

The professional markets enjoy unparalleled access to global markets with increased speed of information flow and execution. But what then? The system continues to flow into a fragmented and silo’d service proposition, often requiring manual bilateral exchanges and multiple layers of infrastructure to connect the value chain end to end. Within this value chain there are fragmented data pools creating asymmetry of information and requiring multiple intermediaries and continuous reconciliation. The fragmented nature of the market also drives the requirement for a high level of regulatory oversight. 

The industry is responding as evidenced by the multiple proof of concept experiments by financial institutions and central banks. Much of this work has been focused upon blockchain and the advantages that this provides for the management of data in a “trustless” environment. By that we mean where one party is unknown to the other and an exchange of value is required.  Blockchain or Distributed Ledger Technology (DLT) allows both parties to provide proof of asset ownership and proof of funds via on-chain consensus. Once validated, atomic (instant) settlement can occur. This can all be augmented with smart contracts allowing further automation and integration into the existing Financial Markets Infrastructure.

A DLT based infrastructure could provide the infrastructure that connects the multiple data pools of today’s market into a single source of truth for all industry users. This has the potential to deliver true instant settlement across multiple assets and markets, leading to:

•     Significantly lower reconciliation costs
•     Reduced Assets servicing costs
•     Automated Reporting, both financial and regulatory
•     Reduced Operational Risk
•     Reduced Liquidity Requirements 

Given the environment we now find ourselves, the ability to reduce costs and liquidity needs feels like a priority and should spur more exploration/investment into increasing market efficiencies.

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