With Johan Toll, Business Development & Product Management Blockchain, Associate Vice President at Nasdaq
Nasdaq recently launched the Nasdaq Financial Framework, which is the base for all our blockchain initiatives, both internal as well as external initiatives by our customers. It is a framework that is focused on forward compatibility and continuous change. It makes it easier for an operator of an exchange, a clearinghouse or a CSD to integrate with the blockchain and launch new applications and business ventures. The framework provides the customer with the flexibility to add new applications of their own and to integrate existing legacy applications.
Nasdaq’s aim is to be able to leverage blockchain technology in a harmonised way, offering our customers the same structure to help alleviate the implementation issues customers might have with introducing such a new technology into their infrastructure. All the applications that sit on top of the Framework, from trading through clearing, risk and CSD, can utilise the blockchain functions through one harmonised core service. Other core services it offers are standardised connectivity and a harmonised data store. It lets the business applications focus on their business functions rather than data access or the technical details of how to access the blockchain.
We believe that our approach will also enable us and the users of the framework to harmonise the way each application, regardless of where it sits in the trade lifecycle, communicates through the blockchain. The core blockchain service also enables interoperability across blockchains and independence to the blockchain implementations.
Putting the Blockchain into action
The Framework facilitates innovation and speeds up the time-to-market for us and our customers to use the blockchain. Nasdaq is currently leveraging the use of the blockchain in a number of distinct initiatives across our organisation to make operational improvements for us and our customers.
The Nasdaq Linq initiative is leveraging the blockchain in our Nasdaq Private Market (NPM) and enables the issuance and instantaneous transfer of private shares and other liquidity events, over the blockchain. Linq tracks the ownership of assets where the only evidence of the shares’ ownership is within the blockchain – without this structure, many shares are today recorded on paper and stored wherever the owner prefers. This is a fully dematerialised system where everything is written into the blockchain. As far as we know, this is the first system to fully issue company shares into the blockchain, where there are actual liquidity events recorded.
Proxy voting or e-voting is another initiative where applying blockchain is improving service. The e-voting solution focuses on the important “Know Your Client” process as many new clients are on-boarded to the e-voting blockchain platform. For example, the owner of 1000 shares may have the rights for 1000 votes, and the votes are treated as an asset in the blockchain. So for each share the corresponding amounts of votes are issued to the blockchain, and then the owner of 1000 shares receives 1000 votes on their blockchain account. During the general meeting they can directly cast their votes to the yes or no bucket as an example. Because this is run on blockchain, this transaction can be complete on a mobile device or computer anywhere in the world with each vote transaction recorded in an immutable way for easy monitoring. This is a rapid evolution of a complex process of vote distribution and casting. From a regulatory perspective, blockchain technology provides efficiency and the transparency that regulators and company owners need to monitor and track how each vote was cast and when. From a proxy voting perspective, there are other huge benefits that blockchain provides because there are a large number of beneficial owners that delegate voting to third parties. The blockchain alleviates a number of issues around proxy voting and tracking the delegation of votes. For example, smart contract logic stamps the votes from the true shareholder onto a smart contract. This smart contract stipulates that the designated proxy has the right to transfer the votes within the smart contract to the yes or no bucket for the general meeting. The smart contract also states that at any time the true owner of the votes can withdraw the rights, withdrawing the votes from the smart contract back to their own account.
These initiatives are based on the same Financial Framework with harmonised data storage and access as well as the entitlement of the draft. Operating on the same infrastructure and data store enables firms to integrate across multiple platforms. While this blockchain framework will initially issue assets and track ownership with smart contracts logic built directly on top of that, we are exploring the underlying functionality to solve other issues and bring efficiencies to other areas of the trade lifecycle.
Another example and area where we believe blockchain can bring significant benefits and that we are currently exploring is in collateral management. By moving collateral management onto a blockchain-based solution, intermediaries are reduced and time to process collateral moves reduced to a minimum, which reduces risk, free up is collateral currently in transit and increases transparency across the process. We also believe that the blockchain technology can facilitate more cooperation between different market operators globally for a more efficient way of handling complex and costly cross border transactions that we currently see today.
As a common fabric for communication and improved financial processing, blockchain technology is not just a buzzword. We truly believe it is one of the greatest innovation catalysts driving change impacting the global market infrastructure. As more market participants start to use the blockchain technology and harmonise across frameworks, market operators can more easily integrate systems for potential cost savings, new revenue streams, cooperation as well achieve regulatory improvements and transparency. It is an exciting time as we await the full impact of blockchain technology and we are thrilled to be at the centre of it all.
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