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Running institutional finance on Bitcoin gears

Risk mitigation, transaction speed main features

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Running institutional finance on Bitcoin gears

Global financial services firms are looking at ways to adopt the blockchain—the technology behind Bitcoin—for use in institutional finance, according to a new report from Greenwich Associates.

Blockchain technology allows Bitcoin to exist and bitcoins to be transferred safely without an intermediary. Also known as digital or distributed ledgers, these networks record transaction information, just like their paper ancestors. This ensures that a digital asset cannot be spent twice or used by someone who doesn’t own that asset—all without any central oversight of either the currency or the ledger.

While the study looked specifically at capital markets participants, interest in blockchain technology is fairly widespread throughout financial services.

Between May and June of 2015, Greenwich Associates interviewed 102 institutional financial professionals to determine the level of awareness and understanding of distributed digital ledger technologies among financial services firms.

While actual adoption in the capital markets is still limited, 94% of the financial professionals interviewed in the study believe distributed ledger technology could be applied in institutional markets, with nearly half actively reviewing the technology within their firms.

What motivates interest in blockchain

While the sources of interest vary, there are a few major themes common across the study participants. Settlement, counterparty, and custodial risk reduction were all key drivers. From a product perspective, over-the-counter derivatives, private stock, repo, and loan markets were viewed as the most likely asset categories to benefit from distributed ledger technology in the medium term.

“Given the growth in trading volume but still limited infrastructure, the markets for leveraged/syndicated loans and private stock are strong candidates for early adoption of distributed ledger technology,” says Kevin McPartland, head of Greenwich Associates Market Structure and Technology Research and co-author of the report.

“In both par loans and [collateralized loan obligations], a monthlong settlement cycle is common and often includes the use of a fax machine,” says Dan Connell, head of Greenwich Associates Market Structure and Technology Practice and co-author of the report. “For a market so obviously in need of technology, it makes sense to implement improvements with the latest tools and approaches available, like blockchain.”

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