ABSTRACT
Distributed ledger technologies (DLTs) have the potential to revolutionise securities trading and the capital market through removing reconciliation and other costs that are no longer needed with the trust and transparency that DLT brings. DLTs have been used to create virtual currencies (cryptocurrencies), such as Bitcoin and Ether, and to create an alternative financial services system. DLTs are an innovation that can facilitate peer-to-peer trading, bringing about the democratisation of financial services markets. This promise is based on the assumption that the functionality of DLTs will result in two changes: decentralisation and disintermediation. To this end, the author investigates how DLT can be applied to the entire life cycle of securities trading – listing (issuing), trading, clearing and settlement – currently operated by financial market infrastructure (FMI) providers. This chapter attempts to answer the following questions: will DLT bring about the benefits it promises? Will decentralisation increase market risks? Will disintermediation create more obstacles to securities trading? In particular, this chapter will assess securities trading on DLT networks against systemic risk, market conduct risk, and operational risk to the capital market and consider the appropriate regulations to enhance market integrity, operational safety and investor protection.
Keywords: DLT, blockchain, smart contract, capital markets, RegTech, FinTech
