The adoption of blockchain technology among stock exchanges is expected to offer significant scope to improve the efficiency around settlement/clearing and collateral management. As a reminder, settlement in the exchanges space is typically T+3 days, but the delay is principally due to market practices, financial industry laws, and regulatory requirements and not necessarily to current technological infrastructure. The industry has already been discussing the potential to reduce settlement to T+2 (already common in Australia) and the implementation of blockchain could act as a catalyst to drive down the settlement period further towards T+0.
Regulatory and legal challenges require resolution before we see wide-spread adoption. The use of blockchain/distributed ledger for settlements could provide a secure, consistent source of proof of the current ownership and provide the origin of assets to custodians, agents and beneficial owners. We note the constraint will clearly be on developments in the regulatory and legal framework to facilitate a shorter settlement period. Blockchain could also have the potential to be implemented in the collateral management process, given the benefits of blockchain to assess the origin of assets, track transactions, and determine ongoing ownership.
Australian Stock Exchange relatively advanced in implementation of blockchain technology. In the exchanges universe, the Australian Stock Exchange is at a relatively advanced stage to embrace blockchain/distributed ledger technology (DLT) as it seeks to replace its existing settlement/clearing system (CHESS) by late 2020. ASX management has indicated that their version of DLT would involve a private permissioned ledger. ASX will be the only one to hold the single source of truth, with all other participants only having access to certain parts of the blockchain as is necessary to unlock their applicable information.