Shanghai Stock Exchange Considering DLT Implementation To Enhance Efficiency

Shanghai Stock Exchange (SSE) is considering implementing Distributed Ledger Technology, to enhance various stages of securities transactions in the market. The exchange has already published a research paper that outlines how the technology could be used to enhance pre-trading customer registration, securities issuance and trading.

By implementing a distributed ledger technology powered system, the securities exchange should be able to increase settlement efficiency. Transactions, as a result, will be settled in one business day after an order is executed, in contrast to the current T+1 which takes days.

According to the research paper distributed ledger technology is currently in the testing stage in financial markets as developers try to analyze people’s opinion all over the world.

“A general worldwide consensus is that DLT will be a new revolution for the financial industry. The first application use cases will be over-the-counter securities issuance and trading, as well as order book post-trading settlement,” SSE in a statement.

However, it comes as a surprise that SSE is maintaining a keen watch on DLT, having suspended trading of ten companies using the technology early in the year.

The world’s fourth-largest stock exchange by market cap taking a keen interest in Distributed Ledger Technology does not come as a surprise. Its counterparts in the financial markets of Hong Kong and Australia have already identified potential areas where the emerging technology could be of great help.

Financial institutions and organizations are maintaining a close watch on Decentralized ledger Technology in part because of the benefits it stands to offer. For starters Decentralized applications tend to be more secure because data stored in a blockchain cannot be altered or changed, thereby making it hard for hackers to initiate attacks.

Implementation of distributed ledger technology at the Chinese stock exchange will, however, have to bypass a string of regulatory hurdles. For starters, the system will bring about decentralization in contrast to the current centralized system for registration and settlement of transactions.

The SSE currently uses third-party intermediaries for settling of post-trading transactions. For the system to be done away in favor of a more decentralized system, a new legal framework will have to be issued by the government as well as regulators.

Despite the regulatory hurdles at stake, the Shanghai Stock Exchange insists that blockchain technology is a transformative technology that the government needs to maintain a close watch on.