Shanghai Stock Exchange Ready To Take Securities With Blockchain

The Shanghai Stock Exchange (SSE) is one of the world's biggest trading venues, and right now, it's eyeing a new way to take on securities: With the use of distributed ledger technology (DLT).

Shanghai

The SSE is eyeing the use of DLT in the securities market, with a report published last Tuesday. The paper looked at the use of the technology in various stages of a transaction, such as the pre-trading customer registration, securities issuance and trading, and post-trading settlement.

Distributed Ledgers: The Key To Securities Trading

Distributed Ledger Technology Research
Distributed Ledger Technology Research

The paper went on to give a summary of potential benefits adopting DLT will give to the Chinese financial sector. These include increasing settlement efficiency by replacing the T+1 model that is currently in use, which is a transaction that can only be settled one business day after an order is executed.

The paper references existing research focused on DL’s that were done by its counterparts in other financial markets. The SSE says there are two potential areas where DLT may be beneficial in the country, saying:

“A general worldwide consensus is that DLT will be a new revolution for the financial industry. The first application use cases will be over-the-counter securities issuance and trading, as well as order book post-trading settlement.”

Hurdles To Implementation?

The research, however, suggests that the deployment of distributed ledger technology on the Chinese stock exchange will first have to get past several regulatory roadblocks, as DLT is in conflict with the current centralized registration and settlement system that is in use.

The SSE currently uses a third-party intermediary as custodian and for settling post-trading transactions. Using DLT would eliminate this. To be able to implement this change, the government needs to issue a new legal framework to cover this.

Despite these challenges, the paper concludes that regulation must adapt to evolving technology. The financial world embracing Distributed Ledgers seems to be on the horizon as innovation marches them forward.

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