The promise of blockchain technology for global securities and derivatives markets: The new financial ecosystem and the “holy grail” of systemic risk containment

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Weaknesses in investor control over their investments and in warehousing systemic risk in modernFinancial Market Infrastructure (FMI) are the result of a combination of market failures and of structural flaws deeply ingrained in modern financial markets. Yet the utility of complex FMI comprising long custodial chains and large global Central Counterparties (CCPs) for the operation of modern markets is not seriously disputed. The change in the technology paradigm with the introduction of DLT systems for securities and derivatives FMI can increase investor control, the efficiency of risk management and, to some extent, augment the distribution of systemic risk. It can thus create a more diverse and resilientfinancial ecosystem. This cross-disciplinary paper identifies a multitude of reasons that favour a paradigmshift in FMI technology. It also sketches a comprehensive blockchain-based framework for thedevelopment of permission-based platforms for derivatives clearing and settlement and the handling ofliquidity shortages within DLT systems. Arguably, the impact of technological change should lead to a reduction of industry rents for the benefit of end investors and of the end users of finance (entrepreneurs and businesses) enhancing market welfare. Therefore, the use of blockchain technology in FMI can transform the structure and future direction of the financial services industry as a whole.
Original languageEnglish
Pages (from-to)81-110
Number of pages30
JournalEuropean Business Organization Law Review
Volume20
Issue number1
Early online date28 Feb 2019
DOIs
Publication statusPublished - 12 Mar 2019

Keywords / Materials (for Non-textual outputs)

  • Central Counterparties (CCPs)
  • financial stability
  • derivatives
  • clearing and settlement
  • systemic risk
  • blockchain
  • DLT
  • risk management
  • financial technologies
  • Fintech
  • intermediated securities
  • financial intermediaries
  • financial market infrastructure

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