The Adoption of Distributed Ledger Technology within Central Securities Depositories : An Exploratory Study from a Business Perspective

Abstract: Organizations in the financial services industry are coming under increasing pressure. Regulatory compliance, operational inefficiencies, and the higher cost of capital are all forcing incumbents to adapt. As such, there are strong incentives for technological innovations that either reduce costs or generate new revenue. Distributed ledger technology (DLT), the foundation of bitcoin, is one of the latest innovations that appear to be the source of an imminent solution. An identified area with great potential for DLT is the post-trade market where market players, such as central securities depositories (CSDs), are heavily investing in pilot studies of how DLT may affect their business activities. In fact, the practical potential of adoption has been demonstrated by experiments and proof of concepts. However, while technological and regulatory aspects have been more frequently discussed in academia, the business dimension of the adoption of DLT within CSDs has received less attention. In this thesis, the business opportunities and challenges of the adoption of DLT within CSDs were explored, coupled with an analysis of the contextual factors affecting the rate of adoption. Further, this thesis compares the throughput performance between a centralized system and a private permissioned network. By performing a multiple-case study with a mixed-methodology approach, the researcher analyzed the literature, conducted a performance evaluation, and interviewed several industry experts. The conclusions suggest that the main business opportunities are the incorporation of digital assets and CSDs potential role as the gatekeeper of private networks. The main identified challenges related to adoption were interoperability, standardization, collaboration, scalability, defining applicable use cases, and governance and regulatory frameworks. Further, the performance evaluation suggests that the throughput performance of the centralized system outperforms the private permissioned network by an average of 6.5 times. The findings have both practical and academic implications. In academics, this thesis lays the foundation for further studies and provides new insights into the business dimensions of the adoption of DLT within CSDs. For practitioners, this thesis provides a basis for discussion and assessment of the entailed challenges related to the adoption of DLT within the post-trade market.