DLT needs market-wide data standardization for global adoption – WEF

Rick Steves

The document points to the need for market-wide data standardization, a break from traditional organizational siloes for capital markets firms, and that regulators’ take the lead by encouraging innovation and avoiding global fragmentation.

The World Economic Forum (WEF) has released a report, conducted in partnership with Boston Consulting Group (BCG), which found market participants are still far from adopting distributed ledger technology at scale.

Despite its potential for significant market-wide transformation and regulators’ open arms policy over the years, DLT adoption across the industry is slowly rolling out as it moves from exploration and experimentation to commercialization.

Matthew Blake, head of the future of financial services at World Economic Forum, said: “Following several years of intense hype, examples of use cases where inefficiencies and challenges are being solved with blockchain are starting to emerge across capital markets. With the future for blockchain in financial services still being defined, a nuanced look at the opportunities this technology offers right now is particularly important for the financial services industry.”

The report, comprised of nearly 200 interviews with executives from leading financial services and fintech firms and an anonymized survey from over 60 firms, provides five key insights:

Market forces, support by regulatory and technical developments are pushing participants in capital markets to digitise and consider the use of DLT;
The underlying challenges that DLT is trying to solve are real and substantial, and while it is not the optimal technology for every proposed use case, experiments are proving its viability in addressing significant operational inefficiencies and improving balance sheet management;
While many DLT and smart contract use cases in capital markets are now live across jurisdictions, grand visions of disintermediation or total digital transformation at scale are still far from being realised;
While emerging DLT use cases are being developed collaboratively, there is no single industry-wide vision of the future in most jurisdictions; and,
While greater digitisation is inevitable, substantial headwinds may continue to limit adoption of DLT.
Presenting both an opportunity and a threat to traditional capital markets institutions, the report explains that in order for DLT to fundamentally transform markets, new ways of thinking and working will need to be adopted.

The document also points to the need for market-wide data standardization, a break from traditional organizational siloes for capital markets firms, and that regulators’ take the lead by encouraging innovation and avoiding global fragmentation.

The coming years are likely to see increasing digitization of markets, including more DLT use cases going live, the report concluded, pointing to the drawback of little market-wide agreement on how DLT will ultimately be used and whether it will fundamentally reshape all elements of the capital markets.

Kaj Burchardi, managing director at BCG Platinion, said: “Distributed ledger technology has come of age as it begins to enhance efficiencies, reduce operating costs and create new business models in capital markets, but the use cases and solutions are respective to each asset class.

“Whilst this makes sense from a commercial perspective, it has led to a complex patchwork of initiatives. For capital markets to unilaterally adopt DLT, they will require cross-institutional alignment to realize the game-changing market opportunities it can offer.”

Industry leaders announce DLT adoption

FinanceFeeds has recently reported on LSEG’s test of its new digital primary DCM Flow platform developed in partnership with Nivaura.

The pilot test has proved the paltform’s validity and efficiency as it has successfully processed a $7 billion syndicated issuance by the LSEG under a global MTN programme. The LSEG priced a syndicated multi-tranche and multi-currency offering raising circa $7bn equivalent across nine tranches.

Flow drives end-to-end automation in primary debt markets and is designed to automate the debt capital markets issuance process using structured data and General Purpose Legal Mark-Up Language (GLML), which Nivaura pioneered.

The LSEG issuance is the most complex transaction to use a primary DCM digitization platform as the bonds were listed on the Main Market of The London Stock Exchange, and settled in DTC, Euroclear, and Clearstream.

Nivaura has actively collaborated with regulators and capital market participants as it worked to solve the complex issues around the negotiation and documentation of structured data in the primary markets.

Its digital and automated workflow solutions are designed to be product-agnostic (e.g. between cash-settled products and tokenization) with configurable implementation options including: bespoke, private cloud, or on-premise deployment; customizable functionality and white-labeling; and real-time workflows which adapt in response to external data.

Nivaura pioneered the development of open-source General-purpose Legal Mark-up Language (GLML) to make legal document templates machine-readable, enabling transaction data in the document to be captured as “structured data”.

The human-readable mark-up language designed for easy use by lawyers or other professionals without any programming experience was designed with debt capital market transactions (particularly high volume MTN and CP issuance) in mind but has a much wider potential applicability.

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