Blockchain for stock markets

panaesha capital pte ltd.

Bringing consumer protections and transparency to investment markets is making the market better every new day. The new age blockchain technology can assist in delivering multiple investor safeguards.

If you look at the use cases, automating stock trading to cut out fees and middlemen, or logging trade histories and mandatory financial data on a blockchain to ease regulator access are simply the top ones. This technology could even enable totally new asset classes for trade.

Reducing Intermediaries

There are various intermediaries between a stock buyer and a seller.  In a single trade, there are stockbrokers, depositories, banks, and clearing corporations involved. The intermediaries often assist the markets function more efficiently, but they’re not all indispensable.

Let us consider the scenario of brokers. Online brokers require a minimum deposit to open an account. The deposit is usually around $500 or $1,000 but can hike to as much as $10,000. You can also expect the brokers to demand stock trading fees, as much as $50 per trade. Apart from this, there are additional hidden charges, like the IRA closure fee and options fees.

The fees may seem unjustified in a world where value and DIY are king. A survey found that 10 percent of millennials preferred using the free digital trading platform Robinhood,  instead of paying a broker or using other fee-heavy trading platforms.

There are certain blockchain-based apps that allow micro-investing, and catering to more budget-conscious investors who are either unwilling or unable to purchase entire shares.

Emergent blockchain-driven investing platforms don’t come with the advice and strategy that an experienced broker can provide. They also aren’t as well-suited to the diversified portfolios that many investors seek. But they do provide a window into the future of blockchain-based trading platforms. They aim to lower the cost of investing by reducing who takes a cut of each transaction.

Built-in Regulation

You probably know about October 24th, 1929 referred to as “Black Thursday”. This name was given because investors that day sold about 3 million shares on the New York Stock Exchange in between tenuous financial times, triggering a full-blown panic.

The move gave rise to Great Depression. Roughly one-third of the non-farmer workforce was unemployed, suicide rates increased to 17 out of every 100,000 Americans, and the nation’s gross domestic product fell from $103.6 billion in 1929 to just $56.4 billion in 1933. This misery was brought on in large part by the failure of 9,000 banks lending money to irresponsible stock traders. Some level of insurance and regulation was needed to avoid a repeat of the Depression.

Over 85 years later, the financial sector still hasn’t shaped up. Perhaps blockchain technology will take the regulatory imperative out of traders’ hands for good.

Blockchain users can access a ledger remotely with the passkey. Traders could save money by permitting regulators some oversight into blockchain-powered trading platforms. Investors of all experience levels and financial means would avoid unforeseen legal consequences through real-time compliance. Greater oversight can also promote responsible trading practices.

Simplifying Post Trade Events  

We humans can’t comprehend the size of the global investing marketplace. The Central Clearing and Settlement System (CCASS) processed 1,526,623 securities trades in August 2018 alone. Those trades transferred a total of 200 billion shares. And CCASS only handles the Hong Kong financial market.

Efficient trades settle on the day of the transaction (T+0) or the day after (T+1). According to PricewaterhouseCoopers, we need more automation and more investment to obtain these idals. Some believe that blockchain-powered smart contracts are the way to do it.

Smart contract technology which is the blockchain technology can help reduce or replace ineffective, and very costly human oversight in blockchain-driven trading platforms. The execution of smart contracts depends on some prerequisite criteria. Until the criteria is not fulfilled and the buyer and seller don’t agree on a specific price point, the smart contract is not successfully executed. Quicker trades mean shorter time lags. Shorter lags free up the equity needed to keep wheeling and dealing.  

Let us know your views about blockchain stepping into the stock market.

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