In a recent survey, the World Federation of Exchanges (WFE) has found that majority of financial market infrastructures (FMIs) are in some or the other way involved in blockchain and distributed ledger technologies (DLT).

The survey was conducted last month by the WFE, in conjunction with the Affiliate Members Consultative Committee (AMCC) of the International Organisation of Securities Committees (IOSCO). The report, “Financial Market Infrastructures and Distributed Ledger Technology”, is based on responses from 24 FMIs (a combination of exchanges, central counterparties and central securities depositories).

“The overwhelming majority of FMIs (21/25 respondents) indicated they were either investigating the applicability of DLT to their environment or actively pursuing DLT initiatives (to the point in one instance of already having deployed a DLT-based application)”, the report said. “[O]f this set of positive respondents, seven replied they had gone as far as to allocate budget to their DLT initiatives. A further 13 FMIs who had not allocated budget as yet, said that they expected to do so in future”.

The report, however, noted that this positive response is attributable to the fact that FMIs not engaged at all with DLT were less likely to respond to the survey.

It further stated that FMIs are exploring a variety of potential use cases for DLT, such as clearing and settlement; trade matching and confirmation; corporate actions; securities issuance particularly for private issuances; crowd-funding; proxy-voting; trade registration; regulatory reporting and transparency. According to the report, clearing and settlement are the area which respondents believe DLT will have the greatest impact on the securities industry.

In addition, the survey results also suggested that respondents are also looking at using DLT to provide KYC/AML registries; trade finance facilities; asset registration facility; database on agricultural receivables; digital assets and associated products. Cost savings, efficiency enhancement and risk reduction are the key reasons that are driving the FMIs towards the technology.

Notably, a majority of respondents did not to commit to a specific timeframe for rollouts, however, 10 FMIs put their expected time to rollout at less than three years.

“FMIs are still evaluating the extent to which DLT technology will live up to its promise, and identified concerns about security, scalability, throughput capacity, and the ability to ensure data privacy”, it said.

In conclusion, the report said that the number of FMIs that are investigating and deploying DLT proof-of-concepts and solutions will continue to increase, adding that the current collaborative approach (such as consortiums) is likely to persist as FMIs, technology innovators and market participants acknowledge that many of the more significant benefits of DLT will derive from standardisation and broad user acceptance. It emphasized that this collaboration should also extend to policy-makers and regulators to encourage the adoption of appropriate enabling regulation and minimise unintended consequences of policy formation.

“Where non-financial, unregulated entities lead in DLT development, regulators will need to ensure that equivalent regulatory standards and protections are maintained”, it added.