Distributed ledger technology and financial markets

Distributed ledger technology (and one of its sub-categories, 'blockchain' technology) has attracted interest from financial market participants, venture capitalists and regulators alike, with regard to its potential application in certain post-trading (mainly clearing and settlement) activities in financial markets.

Potential benefits include increased processing speeds and easier recording of ownership and safekeeping of assets, which could result in significant cost benefits as well as greater security. These stem from the fact that there are fewer contract ambiguities, reduced counterparty risk and easier collection, consolidation and sharing of data for reporting, risk management and supervisory purposes.

However, academics and regulators have also identified several operational, governance, privacy and legal concerns and potential risks that should be addressed adequately before this technology is used for supporting infrastructure as critical as that underpinning financial services. In this context, the European Securities and Markets Authority (ESMA) has launched a consultation on the application of distributed ledger technology to securities markets.

The European Parliament, in its 26 May 2016 resolution on virtual currencies, called on the European Commission to set up a horizontal task force for distributed ledger technologies, made up of technical and regulatory experts, who should aim to provide the necessary technical and regulatory expertise across the various sectors of pertinent distributed ledger applications.

Author: Angelos Delivorias

EPRS: Briefing: Virtual currencies: Challenges following their introduction http://www.europeansources.info/record/virtual-currencies-challenges-following-their-introduction/

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