Beyond the blockchain hype

Euroclear and Oliver Wyman have joined forces to publish a paper called “Blockchain in Capital Markets: the Prize and the Journey”.

The paper calculates that IT and operations expenditure in capital markets is currently close to US$100 billion – $150 billion per year among banks. On top of that, post-trade and securities servicing fees are in the region of $100 billion. Significant capital and liquidity costs are also incurred as a result of current delays and inefficiencies within market operations.

The pair suggest seven steps for the industry to take advantage of the blockchain technology: work on concrete proofs of concept; challenge service providers to innovate; understand current quantification of operational costs, isolating savings from blockchain; continue industry-wide engagement; participate in prototypes and embrace “learn by doing” ; bring the business mind to technological start-ups; prepare the narrative for regulators and supervisory bodies.

Direct savings from blockchain 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 (e.g. by reduced counterparty credit risk) may also help to drive down economic costs of business.

The paper concludes that it is up to major established players in the market to work with innovators to develop standards, while also preserving the existing strengths of the ecosystem.