McKinsey – Blockchain In Capital Markets Essay
A new report titled “Beyond the Hype: Blockchain in Capital Markets” by the business management consultant firm, McKinsey & Company states that the distributed ledger technology holds great promise in future but expects that the development will require cooperation among market participants, regulators and technologists.
According to the report, it states that the blockchain technology will “dramatically reshape the capital markets industry”, thus impacting business models, cost savings and capital requirements in the sector.
The report further stated that the blockchain technology is likely to deliver a range of benefits across the capital markets value chain, from clearing houses and exchanges to prime brokers and banks.
McKinsey also warned that the technology is still largely unproven in complex markets. The other challengers are developing applications which includes not being able to amend blockchain transactions after the fact, the digitalization of assets, asset disposition, position netting and computing power.
McKinsey came to a conclusion that the financial industry need to move in unison to unlock the benefits of the blockchain which is also supported by the major banks that has joined the consortium led by the Blockchain technology company, R3.
He stated that the rollout of technology will occur in four steps. Each of the company will act as a “node and bookkeeper” on the distributed ledger, a development that would provide the organization the chance to “rewire” its existing platforms.
The report states, “Design issues could be internally resolved and modified with experience over time. This first step could also solve for moving assets into and out of a closed blockchain network.
Small networks of markets participants could convene to agree on standards and protocols for booking and transfer with relatively little investment and with the potential to improve current operations.”
McKinsey has found that adoption of blockchain is happening most rapidly in over- the- counter markets, where “volumes are lower and operations are more manual”.
The other areas where blockchain solutions will escalate are in asset backed securities, precious metal, repurchase agreements, syndicated bank debt, title insurance and unregistered securities.
The report suggested that many of the use cases that are targeted by early entrants into the bitcoin space will need much more time to develop.
The report further reads, “Over time, developments in currency trading based on experience in bitcoin markets may seep into foreign exchange (FX) businesses, as bitcoin exchanges obtain the licenses to accept cash deposits.
And application of blockchain technology in the payments space may move beyond the current retail focus.”
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