Divergence In finance - Big bang blockchains or boring lowly ledgers?

SWST 2016-09-27T15:30:00.000Z

Michael Mainelli
Executive Chairman
Z/Yen Group

Perhaps the biggest division of opinion in financial services is between those who believe that mutual distributed ledger (MDL, aka blockchain) technology will transform finance out of recognition and those who believe the technology will be of some marginal benefit. Hysterical blockchain hype has significant momentum. Unrealistic expectations are building that the technology on its own will address the underlying need for co-ordination without strategic management, time and resource commitment, let alone regulatory support. In research for the SWIFT Institute Professors Michael Mainelli and Alistair Milne tested three hypotheses about post-trade processing with practitioners in global securities markets, viz. (a) what constituted appropriate access to mutual distributed ledgers; (b) whether change would be piecemeal or ‘big bang’; and (c) how to change settlement processes. MDL technology has the potential to transform several areas in financial services by changing the nature of central third party roles, principally by reducing their natural monopoly effects and reducing switching costs. Their research concluded that there could be substantial near-term cost and risk reductions for financial services firms from sharing data mutually via MDLs. Ultimately, MDL roll-out unease come more from discomfiture about restructuring incumbent financial power structures than the typical fears surrounding technological implementation.