Blockchain and post-trade – innovation rather than a panacea

The wide-scale adoption of Blockchain or distributed ledger technology (DLT) is in its early throes, but its potential, along with other exciting innovations such as big data, application programming interfaces (APIs), robotic process automation (RPA) and artificial intelligence (AI), is immense. While many use cases for Blockchain have been considered and subsequently rejected, it has become increasingly apparent that the intermediated world of securities markets will benefit from the technology.

Early Blockchain movement in Asia Pacific 

Throughout the Asia-Pacific (APAC) region, a number of forward-looking stock exchanges and market infrastructures are beginning to integrate Blockchain into their operating models. Australian Securities Exchange (ASX) and Hong Kong Exchange and Clearing (HKEX) are leveraging the expertise of Digital Asset Holdings to apply Blockchain into some of their post-trade activities, while Singapore Exchange (SGX), the National Stock Exchange of India (NSE), the Stock Exchange of Thailand (SET) and the Tokyo Stock Exchange (TSE) – among others – are also pursuing their own various DLT initiatives. 

In the case of ASX, it is looking to replace its cash equity clearing and settlement system – CHESS – with DLT whereas HKEX is using the technology to accelerate the processing of northbound transactions on Stock Connect, an exchange linkage between itself and the Shanghai Stock Exchange and Shenzhen Stock Exchange. Meanwhile, SGX and the Monetary Authority of Singapore (MAS) successfully developed DVP (delivery versus payment) capabilities for the settlement of tokenised assets across multiple Blockchain platforms[1].

The market expectation is that the introduction of blockchain and DLT in these areas and through other schemes, alongside other ongoing technical and operational enhancements will result in trading cost reductions for market participants.

Innovating smartly, slowly and sensibly

Blockchain innovation is something which needs to be done collaboratively so that standards can be harmonised – perhaps through adoption of ISO 20022 – allowing for the technology to effectively interoperate across different counterparties and markets. Blockchain leaders should certainly look to SWIFT for inspiration, given its experience in facilitating universal financial messaging standards through the ISO 20022 methodology. This dialogue, however, needs to go beyond just the industry, and should include market regulators too, something which the ASX has been very diligent about during its DLT project. 

Infrastructures also need to acquire a measured balance between innovation, pragmatism and risk management. Firstly, Blockchain is not the ultimate solution to all problems facing securities markets, as other technologies – both new (i.e. AI, natural language generation, etc.) and existing (e.g. data warehouses) – are equally – if not more – capable of remedying various business pain-points or inefficiencies. For organisations to optimise their operational processes seamlessly, they need to be technology agnostic.

While providers like ASX are converting their systems onto a DLT, the process is being executed carefully and slowly, with impacted stakeholders consulted about progress on a regular basis. Other providers are taking a different approach, by running parallel, legacy systems, and sequentially migrating their infrastructure onto a DLT. Given the systemic importance of infrastructures, both approaches are eminently sensible.

Keeping up with the risks

One of Blockchain’s strongest selling points is its security, underlined by advanced cryptographic encryptions, which theoretically are impossible to manipulate or crack. However, cyber-criminals have evolved, and are becoming increasingly sophisticated in how they target major infrastructures and banks. While Blockchain’s security protocols are robust today, its designers and programmers must ensure the technology remains watertight in the future as the opportunities presented by quantum computing and quantum Blockchain evolve, and particularly as more proprietary data is being stored on DLT.

Intermediaries versus fintechs?

Securities markets are notorious for being highly intermediated with multiple counterparties – be it custodians, agent banks, CCPs (central counterparty clearing houses) and CSDs (central securities depositories) standing in between the issuer and the end investor. For many fintechs, Blockchain is a tool by which to bring efficiencies to the intermediaries’ business, by streamlining or eliminating a lot of the operational processes that add to the frictional costs of trading securities for market users.

While Blockchain will certainly bring about savings, systemically important intermediary providers are unlikely to be completely supplanted by fintechs. Many of these institutions are subject to prudential regulatory oversight and tough capital requirements, making the barriers to entry very high for new participants. The most likely scenario is one where intermediaries and fintechs co-habit and work together to deliver innovative solutions.


Blockchain offers a number of advantages, but even greater benefits will be realised if the technology is able to interoperate with other innovations such as big data, RPA, APIs and AI. By applying RPA to comb through a smart data lake, and analysing the information using AI, and subsequently storing these insights on Blockchain, before disseminating it internally and externally via APIs, market infrastructures will be able to enhance client experiences. Blockchain therefore should not be viewed in a silo, but seen as one of many enablers which will improve and rationalise the securities markets’ operating model and practices.