A new report from TABB Group, a financial markets' research and strategic advisory firm focused on capital markets, studies the challenges associated with transforming market settlement to blockchain-based systems, CHAIN-FINANCE reported.

Blockchain has become the buzz word in the past couple of months with various initiatives being started to unlock its potential such as R3 blockchain consortium, the Linux Foundation’s open source Hyperledger project. Symbiont and t0 (Overstock.com’s blockchain platform) have executed financial transactions using the blockchain.

Authored by Larry Tabb, Founder and CEO, the report “Blockchain Clearing and Settlement: Crossing the Chasm” noted that although all blockchain initiatives are not targeted at the back office for highly liquid securities, “the idea of revolutionizing the clearing and settlement of products such as equities, sovereign debt, or even corporate debt is the wide-eyed dream of many entrepreneurs and industry professionals.”

Blockchain technology has the potential to streamline settlement, reduce errors, lower default risks, decrease costs and increase transparency. However, for the blockchain to replace the conventional clearing system, the report says that challenges need to be overcome across banks, investors, custodians, and industry infrastructure.

In this context, the report sheds light on eight major issues:

• Ownership
• Securities lending
• Foreign exchange
• Allocations/confirmations
• Physical securities
• Fractional ownership
• Netting
• Technology challenges across the sub industries of investing, custody, the institutional sell-side, and retail brokerage.

“While the block chain has very significant opportunities, for it to scale and become a major force in the processing of liquid securities, we as the financial community needs to understand how we can get blockchain across this chasm”, it added.