Blockchain technology will bring either doom or opportunity to securities services firms, according to European banking giant BNP Paribas. Writing in the bank’s magazine, Quintessence, research analyst Johann Palychata said the bank forecasts two scenarios: „total disruption” or new, improved services for the institutions who handle the world’s trades.
Scenario 1: Total Disruption
„What would happen if the ownership of securities were recorded in a blockchain?” he asks. According to Palychata, there are two scenarios for the integration of blockchain tech in the post trade world; and the first scenario would create a „total disruption.”
„In its purest form, a distributed blockchain system allows all market participants direct access to the DSD (Decentralised Securities Depositary), to the exchange and to the post trade infrastructure (clearing & settlement).”
„If this setup develops then existing industry players might be redundant,” he says. However, given the challenge of keeping private keys safe, investors will likely „entrust an authority to safe keep [them].”
Scenario 2: Integration
The second scenario consists in an integration of blockchain technology within the post trade ecosystem. This would imply that custodians and settlement infrastructures would use the blockchain to record the ownership and trades between themselves. In this scenario, end investors would still need to use a custodian to access the market and „the ledger will only be accessible to authorized market participants.”
„Existing actors will remain in charge in this scenario, however, their level of service could change and they may deploy new services that they could not in the past because the investments required were a huge barrier to entry.”
Finally, Palychata believes that Bitcoin, which „allows a removal of the central third party in financial transactions,” has „solved a technical challenge and the currency it hosts has been successful so far.”
According to him, the technology „offers a new range of possibilities well beyond finance,” and „should be considered as an invention like the stream or combustion engine.”
One of the world’s top custodians, BNP Paribas Group offers securities services to its 13,000 corporate and institutional clients across 57 countries. The bank, which also offers retail services, is active in 75 countries worldwide, reporting $39.2bn in revenue for 2014.
In an interview with The Banker this week, Philippe Denis, chief digital officer of the bank’s securities services, revealed the company had run brainstorming sessions around blockchain technology for 40 of its employees.
BNP Paribas is currently developing „a handful” of test cases for its operations across custody, fund administration and transfer agency, he said, adding:
„A lot of the process that one associates with the current network model can disappear. You could make do without a central securities depositary.”
„Tendinţele pe care le-am remarcat înainte de începerea pandemiei s-au accelerat pe perioada stării de urgenţă. Am văzut acest lucru ca o oportunitate, un tipping point pentru bancă. Post-pandemie nu avem cum sa ne întoarcem la comportamentul financiar pe care îl aveam până în februarie a.c. Relaţia românilor cu online-ul s-a schimbat. In plus, cardul fizic se va dematerializa. Vom asista la o scădere a cererii pentru cardurile fizice, respectiv la o creştere a preferinţei pentru componenta digitală a acestora.”