In a bid to harness the potential of blockchain technology beyond cryptocurrency, the London Stock Exchange Group (LSEG) is gearing up to launch a new division dedicated to digital markets. LSEG aims to become the first major exchange to facilitate trading in traditional financial instruments using blockchain technology.
The move was initially reported by the Financial Times, which interviewed Murray Roos, the Head of Capital Markets at LSEG. Roos revealed that the company had been diligently testing various blockchain-based trading solutions for over a year. Julia Hoggett, the Head of the London Stock Exchange, has been entrusted with leading this new initiative.
It’s essential to note that LSEG’s foray into blockchain is not linked to cryptocurrencies; instead, it seeks to leverage blockchain technology to enhance critical aspects of trading traditional investment products.
Murray Roos explained, “The idea is to use digital technology to make a slicker, smoother, cheaper, and more transparent process and to have it regulated.”
While several blockchain-based trading solutions are already available in the market, LSEG contends that they need more comprehensive coverage, often addressing only specific parts of the investment process. In contrast, the London Stock Exchange aims to deploy distributed ledger technology across the entire lifecycle, encompassing issuance, trading, and settlement.
It’s worth emphasizing that LSEG’s new venture is not positioned as a rival to conventional exchanges but as a complementary offering. The company plans to establish a separate legal entity to oversee this initiative, pending regulatory approval in the U.K. If all regulatory requirements are met, investors can expect to access this blockchain-powered trading solution in the coming year.
Streamlining Exchange Operations with Blockchain
The primary objective of LSEG’s blockchain solution is to facilitate access to financial instruments, irrespective of the geographical location of the parties involved in a transaction.
Roos provided an illustrative example involving investors from different countries:
- A buyer in Switzerland
- A seller in the United States
- An asset originating from Japan
In traditional markets, executing a transaction among these parties could be cumbersome, but blockchain technology promises to make it swift, straightforward, and secure. Initially, the blockchain-based solution will focus on private markets, expanding access to the array of available products and instruments. The service will be extended to other markets if this initial phase proves successful.
The Future of Tokenization
This marks not LSEG’s first venture into blockchain and tokenization. In 2019, the exchange operator invested in Nivaura, a startup specializing in bond tokenization. Two years prior, LSEG announced its intent to employ blockchain technology for digitizing securities issuance for small and medium enterprises (SMEs) in Europe.
To date, European markets have witnessed the tokenization of assets worth $800 million. LSEG’s forthcoming product launch is expected to boost this figure significantly. Many industry experts believe that tokenization holds the key to the future of financial markets, representing the next evolution.
Among these proponents is Larry Fink, Chief Executive of BlackRock, the world’s largest asset manager. BlackRock recently applied to create its own exchange-traded fund (ETF) tracking Bitcoin spot prices, sparking a wave of subsequent applications and optimism within the digital asset sector.
Despite facing obstacles and delays from the U.S. Securities and Exchange Commission (SEC), experts within the industry maintain their optimism, firmly believing that introducing cryptocurrency ETFs in the United States is inevitable.