A fresh report from the Global Financial Markets Association (GFMA) estimates that, by utilizing distributed ledger technology (DLT), yearly savings of more than $100 billion could be achieved in traditional markets.
The May 16 report, conducted by a traditional finance sector lobby group with assistance from Boston Consulting Group and others, highlighted the need for regulators and conventional financial organizations to give more consideration to the potential advantages of technology. They urged them to observe more closely the positives that could be gained through its use.
An umbrella term that captures the essence of recording digital data and transactions is distributed ledger technology. Blockchain, particularly, is one form of this type of system.
“Distributed ledger technology holds promise for driving growth and innovation,” said GFMA CEO Adam Farkas. “This potential should not be ignored or prohibited where regulatory oversight and resiliency measures already exist.”
A recent study revealed that the use of blockchain technology in derivatives and lending arenas could generate potential cost savings estimated at around $100 billion. Distributed ledgers are thought to be a viable option for streamlining collateral processes, providing considerable financial benefits.
Clearing and settlement processes could be made more efficient with the use of smart contracts. In doing so, it is estimated that $20 billion can be saved in overheads annually.
The technology of Distributed Ledger Technology (DLT) has the potential to revolutionize multiple systems, with clearing and settlements the most likely to benefit, closely followed by asset custody and servicing. All these could greatly improve from its implementation.
Analysis from BCG revealed that the tech had minimal impact on primary markets and secondary trading. However, the potential of tokenization could lead to better risk management and increased liquidity for these areas.
The emergence of DLT is becoming ever more evident by the day. As testimony to this fact, Euroclear, a prominent European securities clearing firm boasting 37.6 trillion euros ($40.9 trillion) in assets under custody recently declared its intention to incorporate DLT into its settlement process on March 23rd.
Although DLT can have a revolutionary impact on existing financial systems, challenges still remain. Last November, the Australian Securities Exchange experienced this firsthand when its attempt to update its 25-year-old clearing and settlements system with DLT resulted in a loss of $170 million.
The report from GMFA was released only eight weeks after Citi investment bank’s projection that the market for tokenized assets based on blockchain technology could potentially reach $5 trillion worldwide by 2030.
