Abstract
This article outlines the benefits and risks of the distributed ledger technology (DLT) for the clearing and settlement phase of the trade life cycle and describes its potential role for central counterparties and central securities depositories. Although the industry is attempting to solve the technological and operational issues that DLT systems still face, such as the harmonization of technical standards, outstanding legal risks are such that the financial industry is asking for regulatory guidance and intervention. This article wants to contribute to the debate whether to regulate DLT by first presenting potential regulatory barriers that may have to be removed for this technology to be fully adopted and then identifying areas requiring an update of the legal framework in order to address certain prudential and conduct risks that this technology could introduce.
Highlights
Distributed ledger technology (DLT), of which the blockchain technology1 is the best known example, has attracted significant interest from the financial industry and academia
According to Goldman Sachs (2016), DLT could reduce transaction costs of insurance underwritings by $2–4 billion in the USA alone and the costs related to securities clearing and settlement would decrease by $11–12 billion
Trading venues might develop their own way of clearing and settlement using the DLT technology, thereby making a central counterparty (CCP) or central securities depository (CSD) no longer needed
Summary
Distributed ledger technology (DLT), of which the blockchain technology1 is the best known example, has attracted significant interest from the financial industry and academia. Trading venues might develop their own way of clearing and settlement using the DLT technology, thereby making a CCP or CSD no longer needed.
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