Post-trade: An Examination of Blockchain Technology’s Capabilities for Future Development

Abstract: Financial markets have a major role in economic development. An area of the financial industry is securities trading consisting of several stages such as pre-trade, trade execution and post-trade processing. This study has focused on the post-trade stage of securities trading with a particular focus on central securities depositories (CSD). Blockchain technology has been a hot topic amongst experts of the financial industry with discussions on a potential to disrupt parts of the industry. The purpose of this study was to investigate if blockchain technology is a relevant choice of technology, to cope with problems in the post-trade industry that need to be addressed. The study has investigated whether challenges in the post-trade can be addressed with the help of blockchain technology by identifying the existing challenges, the capabilities and drawbacks of blockchain technology and finally detecting any obstacles for the potential development of this technology in the post-trade industry. The conducted research was performed through a qualitative research study, a literature review and data collection through primary and secondary sources using an inductive and abductive combination of approaches. The main findings in this report suggest that blockchain can potentially be applied in many different areas of the post-trade industry but is particularly suited to some areas in CSDs and potentially provides new opportunities such as better technology to cope with reconciliation challenges and provide an alternative to archive data, increasing audit possibilities and transparency. Nevertheless, the report also suggests that those problems could be solved with other technologies as well. Blockchain technology also has the potential of removing some intermediaries in the post-trade industry like clearing houses, however several barriers to such a development have been identified related to legal and political aspects. The study identified that blockchain technology in its basic form is not a relevant technology to use in stock exchanges due to its inability to meet the specific requirements of an exchange. The application of smart contracts in blockchain technology opens up possibilities to handle the problem of human errors and presents a solution automating certain financial processes. The theoretical contributions of the study are suggestions on improvements to frameworks used in the report.