LONDON (Reuters) - British financial start-up SETL said it launched on Wednesday what it called the world’s first commercial platform for using blockchain technology to register and settle securities transactions.
Blockchain or distributed ledger technology is already used to underpin the bitcoin virtual currency, and creates a database in which participants can trace every transaction.
A race is on among “fintech” companies to show how they can “disrupt” the way financial market infrastructure operates by speeding up transactions to cut costs and improve transparency.
SETL Chief Executive Peter Randall said he was in “advanced negotiations with a very encouraging selection” of financial firms about their use of the new OpenCSD platform.
It will allow banks to access a membership-only blockchain platform to jointly record and settle changes in the ownership of a security, he said.
Randall likened it to providing basic market infrastructure such as rails and signalling, while banks supply the carriages they want.
Banks would be able to use the ledger or chain for their own internal paperwork and for sending payments or assets to other banks, he said.
Faced with weaker profitability, banks want to cut costs in the back office where paperwork for trading is completed.
“Just maintaining the massive database structure banks have is very expensive and that would be a ripe area for saving,” Randall told Reuters.
Details on every transaction can be recovered almost instantly to answer inquiries from regulators, helping to cut compliance costs.
Quicker completion of transactions leads to a shorter exposure to the risk from those trades going wrong, meaning far less collateral or cash is needed to back the trades in a further saving, Randall said.
He is a former head of Chi-X Europe stock exchange which in a decade became Europe’s biggest cross-border bourse, forcing long-established exchanges to cut trading fees.
He declined to predict a repeat shake-up in the area of securities settlement where the likes of Euroclear and Clearstream (DB1Gn.DE) dominate in Europe.
Reporting by Huw Jones; Editing by Ruth Pitchford