Inter-Broker Transfers & Blockchains for Digital Securities

Categories:Personal
Bruce Fenton

While AML/ KYC gets all the attention the logistics advantages of digital securities are significant

Wall Street spends billions a year on technology in one of the world’s largest and most profitable industries. Yet, there are certain problems that Wall St. could never solve until the invention of Bitcoin and the first blockchain. The ability to verify truth without the need for a trusted third party is a big deal.
Transfers between brokers

For example, right now the ACAT system (Automated Customer Account Transfer System operated by DTCC) which transfers accounts between brokers takes anywhere from three to 11 days or more to transfer assets from one broker to another. Even longer if you do not have a current identification, are member of a trust, have changed address, or are beneficiary of an estate etc.

If these assets were digital with a blockchain running the ledger of who holds what then they should be able to move your securities just as easily as you can move Bitcoin. between Kraken and Coinbase — a matter of hours rather than days or weeks.
A global market

Today we are currently siloed in the way that we operate markets. Americans tend to buy American stocks, Japanese citizens buy Japanese stocks Chinese, Chinese stocks and so on. We see very little cross purchasing and holding between markets —for the global economy and the age of the Internet and cryptocurrency this just doesn’t make sense.

With today’s technology, and digital assets there is no reason that we can’t have truly global markets where securities trade the same way that cryptocurrencies, tokens and protocol coins trade today. Remember that Bitcoin trades in a way that nothing else before it has ever traded before : because of the way that the ledgers work — it moves differently.

All of its forks, inspirations and successors — including the ERC 20 protocol and others all trade (with some exceptions) in this similar way — with the ledger decentralized or partly decentralized — the ledger is controlled by the blockchain not a centralized trusted third party.

This is very very significant and distributed letter technology has great potential to displace the way that ledgers work currently.

The new technology will open up avenues which will allow people to interact in ways which are not so heavily regulated. As with anything related to cryptocurrency, finance, money and securities or the stock market, the rules vary widely depending where you are. Typically these activities are very heavily regulated globally. Even within existing regulatory structures blockchain based ledgers offer significant advantages in speed and efficiency of how they allow assets to move (which overcome some drawbacks which they have in speed and efficiency of whats needed to make a blockchain work).

Not all bottlenecks, and issues in the current system are due to regulations. For example, much of the trusted third-party systems are not driven by regulation but the by necessity. Wall Street developed solutions in the 60s, 90s and other time periods in order to deal with scaling and volume. Likewise many of the rules regarding how securities transfer between firms are fairly straightforward while many layers of non-regulatory administrative procedures have been piled on over the years — not because of regulatory request — but because of inefficiencies in the underlying system due to the reliance on centralized trusted third parties.

One way or another, the advantages are significant. Challenges and drawbacks such as inefficiencies caused by blockchains, risk of loss and theft of bearer assets and other issues will have a lot of motivated people working to solve them. If we do then the way securities trade and move will change forever.