Decentralized Technologies and the Future of Securities Markets
Citigroup unveils survey findings, shedding light on the sentiments of global financial institutions and traders about the role of decentralized technologies in the securities arena.
In the dynamic landscape of the financial markets, many current trading infrastructures appear outdated. This has led the surveyed firms to cast their gaze upon emergent technologies, prominently Distributed Ledger Technology (DLT) and blockchain. A significant 74% of those surveyed expressed intentions to soon delve into projects harnessing these contemporary decentralized platforms — a marked surge from last year's 47%.
Interestingly, the corporate tilt seems more favorable toward tokenization and the intricacies of DLT, rather than gravitating towards cryptocurrencies per se. Roughly 44% are immersed in crafting DLT initiatives, with 22% boasting of finalized solutions. Meanwhile, a diverse 32% are channeling their resources into assorted blockchain-centric projects.
There is a very clear trend that DLT and smart contracts are coming into our post-trade world — so let’s start working out the capabilities and limitations of these tools today,observes Derek Neo, Head of Digital and Depository Services at SGX Group.
Custodians, constituting 87%, along with brokers at 77%, display the most avid interest in intertwining their operations with decentralized technologies within the conventional financial domains. Contrarily, institutional investors display a tepid 25% interest. Analysts at Citigroup reason this disparity, speculating that substantial capital stakeholders might prioritize interest-driven revenues over pursuing optimization merely for set gains. Such initiatives, thus, don't resonate as compellingly with them.
Different market segments and their engagement with digital assets. Source: Citigroup's official website.
Yet, not all are aboard the decentralization express. A degree of market skepticism stems from an innate resistance to upsetting established norms and grappling with regulatory ambiguities. But the pundits at Citigroup hold a conviction: every firm, in time, will carve its own path in this decentralized narrative.
On another front, smart contracts, stablecoins, and Central Bank Digital Currencies (CBDC) are emerging as focal points for financial institutions eyeing global settlements. CBDCs, in particular, resonate with 52% of enterprises as a plausible fit for their operational framework. Meanwhile, bank-endorsed stablecoins have caught the fancy of about 28%. Challenges, like ambiguous regulations, evolving management infrastructure, and security concerns, do loom large. Yet, the allure of gaining a strategic edge in an intensifying competitive arena might just tilt the scales in favor of these nascent technologies.
