There is an argument being made by a new paper of London Scholl of economics that the existence of infrastructure for transmitting and holding securities may put an asset owner at risk- and that of the blockchain application is helpful to reduce the problem, where this new technology is used to keep the security register and to update them when available.
Luke von der Heyde of South Africa-based law firm ENSafrica and Eva Micheler of the LSE’s Law Department penned that the paper forwarded for the argument and posts indicated that as the evolution was carried on from the paper-based security to a complete electronic settlement led to communication times that is much faster, which impacted and given rise to a negative tradeoff along the way.
As according to the authors, “Not only the transaction risk has been eliminated by the computers but has also introduced custody risk at the same time. “ The financial industry throughout the world gave a significant attention and got attracted toward the application of the securities trading and settlement technology. This prototype and testing blockchain based system introduced in a number of banks, where few of the industries that have startup working are devoted towards this specific application.
According to the paper, there are many benefits for those who are actually selling and buying securities that are offered by the technology, who charge the fee at a potential cost of intermediaries along the way.
Other authors wrote that there is no such requirement for separate trading, clear and settle venues. If a central provider fails, then there is no exposure to the risk of anyone. The interaction between the buyer and the seller can be made directly with each other. They have the facility to exchange the cash and securities directly and in real time management system.
Von der Heyde and Micheler made an argument that due to the current securities settlement environment the investors are separated from the issuer through an intimidating, even though, there is a great profit in the communication speeds. Due to which the right to enforcement has become very difficult if not totally impossible. It exercises the voting rights and stands in the way of the shareholders. Risks operated between the investors and the issuers in which investors have to bear all that is associated with the intermediaries.
The other authors stated in their arguments that there is always an increase of intermediaries’ level spanning across the world due to regulators level, which keeps on going. Not only the introduction and the existence of the computers have made the assets more difficult, but also made the performance of the trading easier.
Furthermost the paper also argues, that the issues of digitization being made by it have led to a wider and a strong network of the intermediaries and it’s fueling more and more on the daily basis. These problems that relate to the investor’s rights, which is extended in such a way in this scenario where an issuer encounters the financial problems, as per the authors’ statement.
Taking the similar issues and sentiment of the securities industries, Von der Heyde and Micheler found that the applications are the most fundament and essential in the early stages and any broad ranging usage is the main subject to the market landscapes and shifting regulatory.
The two closed the argument by stating that a role should be played by the asset owners in assessing the use of new technologies for the securities sector along with market regulators and incumbents.
Last but not the least; the report concludes that as regulators being kept aside and laid the ball in the court of asset owner [s] where some of them may ask the question about how their assets are going to be held up. They could also involve themselves in the discussion of the about how the new technologies should be implemented.
>> Full Paper