IBM and Santiago Exchange, the largest stock exchange in Chile, announced a partnership to introduce blockchain technology in the country’s financial system. The Santiago Exchange will be the first stock exchange in Latin America to implement a securities lending blockchain solution.
“Our agreement with Santiago Exchange marks another new era of innovation in the stock market. Santiago Exchange is a pioneer in its industry, and the blockchain adoption establishes a transformational precedent in the financial market, not just in Chile but in this region and the world,” said Francisco Thiermann, General Manager of IBM Chile.
A Santiago Exchange press release (in Spanish) highlights the fact that deploying IBM’s blockchain-based technology solution is expected to help increase throughput and reduce errors and fraud, as well as improve transaction management for the back-office processes. and lowering costs. It’s expected that the IBM blockchain solution will bring significant time and cost savings to the Santiago Exchange.
The potential of blockchain technology to enable securities trading organizations to significantly reduce the cost, complexity and speed of trading and settlement processes is now widely recognized in the sector.
“The Stock Exchange is a technologically advanced company, which provides the infrastructure and systems for all types of securities transactions and their clearing and settlement,” said Santiago Exchange CIO Andrés Araya. “The Stock Exchange also provides information services and management systems for intermediaries. Incorporating blockchain into our business processes is in line with that purpose and positions us as a forerunner in the financial market.”
“In our understanding, it will be the first to implement securities lending blockchain technology anywhere in the world,” Thiermann said in an International Business Times interview, adding that blockchain technology will make stock exchanges more secure, protecting against invalid payments and human errors, like lost contracts. “Introducing the blockchain will allow them to do it cheaper, faster, and in a more secure environment,” Thiermann said.
Though securities lending still accounts for less than one percent of the current Chilean market, according to Thiermann, it moves trillions of dollars in North America. “Those stocks will be borrowed by another institution for a short period, let’s say one week,” said Thiermann. “Afterwards, they return the stock to the original lender. In Chile, this process today is still done manually.”
The solution developed by IBM is based on the open source Linux Foundation’s Hyperledger Fabric.
In 2016 IBM and Japan Exchange Group announced an agreement to test the potential of blockchain technology for use in trading in low transaction markets. “We plan to explore blockchain fabric to evaluate technical limitations and the potential of blockchain for post-trading service for low volume traffic by fully utilizing IBM global resources including IBM Research, Tokyo,” said Atsushi Santo, Head of New Business Development, Japan Exchange Group.
International Business Times notes that the Korean Stock Exchange, London Stock Exchange, Estonia’s Tallinn Stock Exchange, the Australian Securities Exchange, and Nasdaq, are experimenting with blockchain technology. Scotland is planning to launch its own stock exchange, Scotex, based on a blockchain system.
In the future, blockchain technologies could fundamentally change the way stock markets work, concludes the International Business Times analysis. Distributed ledger systems could decentralize exchanges and permit direct ownership transfers between investors. “Right now we are only seeing the tip of the iceberg,” said Thiermann.
Picture from Wikimedia Commons.