A new report from the Global Financial Markets Association (GFMA) claims that around $100 billion or more could be saved annually if distributed ledger technology (DLT) was used in traditional markets.
In a May 16 report, traditional finance industry lobby groups joined international consulting firm Boston Consulting Group and others in asking regulators and traditional financial institutions to take a closer look at the technology's advantages.
Distributed ledger is an umbrella term for systems that record transactions and digital information. A blockchain is a specific type of distributed ledger. "Distributed ledger technology promises to drive growth and innovation," said GFMA CEO Adam Farkas. "This potential should not be ignored or inhibited where regulatory oversight and resilience measures already exist." According to the report, using distributed ledgers to streamline the collateral process in derivatives and lending markets could save an additional $100 billion.
Additionally, leveraging smart contracts to automate and support clearing and settlement processes could reduce administrative costs by $20 billion per year. Overall, the systems that would benefit the most from implementing DLT to some extent are clearing and settlement, closely followed by custody and asset servicing .
According to BCG's analysis, primary and secondary markets are unlikely to be significantly impacted by technology, but tokenization of these markets could better mitigate risk and increase liquidity.
Distributed ledger technology is starting to see a higher degree of adoption internationally. On March 23, European securities clearing firm Euroclear which claims to have more than €37.6 trillion ($40.9 trillion) in custody assets announced that it would seek to integrate DLT into its settlement process. However, there is still a lot of room for improvement when implementing DLT into existing financial systems.
In November, the ASX abandoned plans to update its 25-year-old clearing and settlement system with DLT, causing a $170 million hole in its books. The GMFA report comes just two months after investment bank Citi claimed the global market for blockchain-base d tokenized assets could reach a staggering $5 trillion by 2030.
