Murray Roos clarified that the exploration of blockchain does not mean that the exchange is delving into cryptocurrencies like Bitcoin and Ethereum.
The London Stock Exchange Group (LSEG), one of the oldest and most reputable stock exchanges in the world, is embarking on the integration of blockchain technology into its operations according to a report by Financial Times.
London Stock Exchange Group and Its Interest in Blockchain
The reputable exchange has been in operation for centuries, facilitating the trading of stocks and other financial assets using traditional methods. The increasing interest in blockchain stems from the belief that it could enhance the efficiency and security of financial operations. LSEG is contemplating the adoption of this technology to leverage its features and improve the processes of buying, selling, and holding assets such as stocks and bonds.
The decision to explore blockchain technology for traditional financial assets comes after a thorough year-long study. Murray Roos, Head of Capital Markets at LSEG, hinted that the exchange has carefully examined the potential benefits and challenges associated with this move and is now confident in moving forward with its plans.
Murray also clarified that the exploration of blockchain does not mean that the company is delving into cryptocurrencies like Bitcoin and Ethereum. Instead, they are looking to utilize the underlying technology of cryptocurrencies to enhance the functionality of traditional financial markets. This means they are exploring blockchain’s capacity to provide higher security, efficiency, and transparency to the existing financial system.
“…Definitely not building anything around cryptoassets… The idea is to use digital technology to make a process that is slicker, smoother, cheaper, and more transparent… and to have it regulated,” explained he.
With blockchain technology, the company can automate its system, reducing the need for intermediaries and paperwork. Since all transactions on the distributed ledger are visible to authorized participants, it will enhance transparency and reduce the risks of fraud and errors.
The anticipated digital market will enable participants from various jurisdictions to interact while adhering to regulatory requirements. The project will initially focus on private businesses since private markets can be complex and less transparent, and digitizing them will enhance efficiency. If the entire plan proves successful in private markets, the company plans to expand it to other assets and segments of its operations. Roos stated:
“A successful implementation of this strategy will make the London Stock Exchange the first major stock exchange to offer a blockchain-powered system covering everything from issuance to trading, reconciliation, and settlement.”
To illustrate how the digitized system would simplify operations, Roos provided an example involving a Swiss buyer, a Japanese asset, and an American seller. Such cross-border transactions are currently complex due to traditional technology and regulatory hurdles, but he believes that such transactions could become more straightforward with blockchain.
Blockchain Technology Can Revolutionize Traditional Financial Systems
Blockchain technology gained prominence through cryptocurrencies and, to a great extent, offers enhanced security and trust, eliminates the need for central authorities and intermediaries, and reduces transaction costs. It also has the potential to expedite transactions and contract execution through self-executing agreements with predefined rules (smart contracts). Moreover, blockchain can extend financial services to the unbanked or underbanked population.
Leveraging these advantages can help traditional financial systems become more efficient and reach a broader user base.