The Depository Trust & Clearing Corporation (DTCC), a financial securities clearinghouse and services provider, has released a report (Embracing Disruption: Tapping the Potential of Distributed Ledgers to Improve the Post-Trade Landscape) that details the risks and opportunities of the application of blockchain technology to the current post-trade securities clearing system.
According to the report, current market infrastructure has proven reliable over the past several decades, but the legacy system is not equipped to deal with certain types of threats that have emerged over the past few years.
“The legacy systems currently employed were not architected to protect against today’s technological threats, including the potential for cyberattacks. As a result, the potential for data compromises due to system vulnerabilities exists.”
The report acknowledged that blockchain-based settlement systems can alleviate these risks and also simplify many of the convoluted trade settlement practices that underpin today’s global financial system.
“A collaborative industry modernization program that includes distributed ledger technology could reduce the process steps required for ﬁnancial transactions and improve the security and resiliency of the remaining processing systems, thereby reducing costs and risks of transaction failure.”
While the report went into great detail regarding the benefits of implementing distributed ledgers, it also stated that this new innovative technology is still in its infancy and great caution should be exercised.
“it is immature, unproven, has inherent scale limitations in its current form and lacks underlying infrastructure to cleanly integrate it into the existing ﬁnancial market environment.”
The report also cautioned against all the hype that has been generated by the financial media on digital currencies and blockchain start-ups over the past few years, “The current ﬁnancial technology venture funding environment, along with the media frenzy over the next industry to be disrupted, has created a chaotic gold rush of new vendors, partnerships and existing ﬁrms all looking to leverage this technology.”
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