Australian Stock Exchange to Become Global Leader in Blockchain Technology

Rage Commentary : Blythe Masters, CEO of Digital Asset Holdings, believes that the post-transaction procedures of banks are complicated and inefficient, wasting huge amounts of money. As ASX also said, $90 million is wasted in clearing and settlement business every year. And according to Blythe Masters, global bank profits are decreasing, while operating costs remain high, which poses a great challenge to the survival of banks. The in-depth research and application of blockchain in various countries have fully proved its high efficiency and low cost, and it will become the preferred solution for banks to solve the current crisis. As for the defects of blockchain itself, Blythe Masters believes that the hyperledger can completely solve them.

Translation: Nicole

Speaker: How does blockchain technology serve CBA?

How can decentralized blockchain technology help the world's nine largest banks, including Australia's CBA, Barclays, and JP Morgan, operate more efficiently?

Blythe Masters is confident that Australia will build the world’s first database to solve stock trading problems, saving brokers tens of billions of dollars in back-office system costs. The famous former JPMorgan banker, who now runs a New York-based blockchain startup with an ASX stake, said distributed ledger blockchain technology in financial services “may be the most important idea I’ve come across in 30 years.”

She told ASIC's annual forum in Sydney on Tuesday:

“I believe the project ASX is working on has the potential to be the first and most successful blockchain project in the world.”

Blockchain technology, or distributed ledgers, is a network of computers where everyone has the same data about transactions. The ledgers are automatically synchronized, providing a single source of information for network members. This is the same technology as the cryptocurrency Bitcoin, which does not require a third party to mediate transactions.

Ms Masters said:

"She is now using technology that can eliminate the reconciliation process, which wastes tens of billions of dollars for all the banks and brokers in the world. Using this technology will eventually achieve some real benefits through cost savings."

The ASX said it would lose almost $90 million in annual revenue from clearing and settlement services if the technology was adopted, something Ms Masters was keen to see.

Excellent planner of credit default swaps

Blythe Masters

In January, the ASX paid $14.9 million for a 5 per cent stake in Ms Masters's company Digital Asset Holdings, which also works with ANZ Banking Group and other global banks and market operators.

Ms. Masters played a key role at JPMorgan Chase, creating the modern default swap system before rising to become chief financial officer of JPMorgan's investment bank and head of global commodities.

She said:

"Because the world is moving at high speed, the comparative advantage of front-end financial services is very small. But the back-end process - selling stocks and waiting for funds to be credited to the account may take several days."

This is mainly due to the cumbersome reconciliation process, as each market participant has to reconcile their trading records with everyone else's.

Billions of dollars wasted

But Ms Masters said if you had a record that represented true transaction history or customer data or identity or registration, “you have the opportunity to remove layers of inefficiencies in post-trade processes that waste costs, consume jobs, cause delays and increase risk.

Former ASX chief executive Elmer Funker Kupper, who was forced to resign from the ASX on Monday, told the Australian Financial Review Business Summit last week that the new technology could cut $4 billion to $5 billion a year in costs of running the stock market.

"Today's stock market is a very sequential process. Even very simple transactions require complex sequential processes. These processes are more than 20 years old. We found that if we can get everyone on the blockchain journey, $4 billion to $5 billion can become a smaller number. But in this value chain, we can develop innovation, competition and better services."

The ASX said it had decided to work with Digital Asset on the project, led by Funke Kupper's successor, and would decide next year whether to take the technology halfway.

ASX deputy chairman Peter Hiom said the ASX was "the first exchange to say we wanted to do a large-scale market operation", but the exchange did not want to "take the risk or be different from other exchanges" and wanted to work towards standards that worked together.

Banks see 'really cool opportunity'

Australia is optimistic about blockchain reducing costs

“When we look at the possibilities of blockchain technology and what we can do to change operating costs and securities fundamentals, there is a lot of back-office management systems around reconciliation that can be reduced to save money, and that’s a really great opportunity for us,” said Australian Federal Group managing director and ASIC annual forum panelist, Ms Masters.

Ms Masters said global banks were considering the technology due to pressure on equity returns, which were shrinking while costs and funding levels were rising. Blockchain technology “is becoming a technology that is in high demand in the industry”.

She said:

“Companies are under tremendous pressure to fundamentally rethink their business models. We are not talking about reducing costs by 5, 10 or 15 percent. We are talking about reducing costs by 50, 60 or 70 percent.”

“This technology has the potential to bring about a dramatic change in financial processes, speeding up settlement times, thereby reducing errors and lowering risk-based and operational risk capital.

“The added benefit will be increased resilience to cyberattacks, which no one should feel comfortable facing.”

She said one of the main challenges for the technology is deciding on common standards, but pointed to the Linux Foundation’s Hyperledger project, which is paving the way for blockchain technology with the help of global tech giants IBM, Intel and Cisco.

CBA's Ms Spring said the bank was waiting for those standards to be developed, but "once we have them, there will be more sharing in terms of technology collaboration and development than there will be in terms of non-tech embedded people.

“As these standards develop, I’m optimistic about people collaborating on open source so that all financial institutions and governments can talk to each other using the same standards.”