European clearing and settlement agency Euroclear has called on financial market participants to collaborate and embrace the long-term potential of blockchain technologies for cutting IT costs and driving down post-trade and securities servicing fees.
In a new white paper, published in conjunction with Oliver Wyman, Euroclear calculates that IT and operations expenditure in capital markets is currently close to US$100-150 billion per year among banks. On top of that, post-trade and securities servicing fees are in the region of US$100 billion. Significant capital and liquidity costs are also incurred as a result of current delays and inefficiencies within market operations.
Ben Shepherd, partner in Oliver Wyman’s strategic IT and service operations practice, says: “The prize on offer is a world where all capital market participants work from common datasets, in near real time and where supporting operations are either streamlined or made redundant.”
Direct savings from blockchain, he says, would need to come from the decommissioning of redundant or duplicative systems, reduced operational overheads and cost-sharing across institutions. Reducing firms’ financial resource requirements, for example by reduced counterparty credit risk, may also help to drive down economic costs of business.
The paper lays out three routes to the adoption of the technology:
- Challenger disruptions developed outside of the core capital markets ecosystem, typically occurring within the next 18 to 24 months.
- Collaborative efforts to shift the existing value chain to blockchains, a process that is likely to to take more than ten years to overhaul core parts of the system.
- Mandated policy where supervisors direct the industry to introduce new market infrastructure, so that costs are reduced or that operational or systemic risk is lessened.
Angus Scott, head of product strategy and innovation, Euroclear says: “In order to work together to shape a new future, the industry needs to take a collective view on the potential of the technology, which was the intention of this study. The market must embrace this potential, show patience with this development and invest in various innovative solutions to bring it to reality.”
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