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Regulatory Clarity Called for by Exchanges over Blockchain Use

Regulatory Clarity Called for by Exchanges over Blockchain Use
The world's trade body for exchanges said that a lack of clarity over regulation is holding back the development of blockchain technology for cutting the cost of share trading.
Blockchain is a tamper-proof shared ledger that can automatically process and settle transactions using computer algorithms with no need for third party verification. The members of the World Federation of Exchanges (WFE) were asked about their plans to use blockchain.
Blockchain, the technology behind bitcoin transactions, would be used for the new system and would be targeted at the institutional clients of the bank. In the world's most-widely used pure-digital cash system – the bitcoin, every transaction made with the crypto currency is recorded by blockchain which functions like a vast, decentralized ledger for the bitcoin economy. The broader application of blockchian technology has got a number of financial institutions in making use of it.

Due to the savings it could potentially bring, blockchain development was piled into this week by more big banks which are among the main customers of exchanges.
The paperwork of a trade is completed and legal ownership of the security is swapped for cash in clearing and settlement by the use of blockchain and this is where the technology would have the biggest use, said the WFE.

"Financial market infrastructures are uncertain about the extent to which the technology, particularly as applied to capital markets, will live up to its promise," the WFE said in a statement.
"They also highlighted several risks that need to be addressed such as risks of maintaining security standards across a decentralized database, legal and regulatory uncertainty, and concerns around scalability," it said.
However, the WFE said that the current legal and regulatory rules treat each of the transactions of trading, clearing and settlement separately and it is here that blockchain looks to combine these three elements.
The WFE said that also a barrier to developing blockchain are vested interests in the preservation of the existing system.
Clearing and settlement houses such as CME Group, Deutsche Boerse, China Financial Futures Exchange, LCH.Clearnet, Japan Exchange Group, Nasdaq and Singapore Exchange were among the firms that were incuded in the WFE survey which was based on responses from 24 exchanges.
The possibility and the intricacies of the use blockchain to avoid being sidelined is already being looked into by many exchanges and clearing houses.
A consultative committee of IOSCO, the global umbrella group for securities markets regulators who are studying the implications of blockchain was a partner in the survey.

Earlier this week there was reports that four of Europe and the U.S.'s biggest banks have joined forces to work on a system that would reduce dependency on cash based on the block chain system. The banks are hoping that they would be able to formulate, finalize and ultimately launch a digital-only cash system within a period of four years from now.
Jointly initiated by BNY Mellon, Deutsche Bank and Santander, plus U.K. brokerage ICAP and the UBS, the banks are working on the on the Utility Settlement Coin (USC) and they hope that the new system would be quicker and a more efficient means towards an alternative to the bank current clearing and settlement process.

Christopher J. Mitchell

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