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According to a new report from the Global Financial Markets Association (GFMA), about $100 billion a year or more could be saved if distributed ledger technology (DLT) was used in traditional markets.
In a May 16 report, the traditional financial sector lobby group, along with international consulting firm Boston Consulting Group (BCG) and others, urged both regulators and traditional financial institutions to take a closer look at the benefits of the technology.
A distributed ledger is a general term for a system that records transactions and digital information. Blockchain is a special type of distributed ledger.
“Distributed ledger technology promises to drive growth and innovation,” said Adam Farkas, Executive Director of GFMA. “This potential should not be ignored or banned where regulatory oversight and resilience measures already exist.”
Using distributed ledgers to streamline collateral processes in the derivatives and credit markets could save an additional $100 billion, according to the report.
In addition, using smart contracts to automate and strengthen clearing and settlement processes could reduce overhead costs by $20 billion annually.
In general, the systems that can benefit the most from DLT implementation at some level are clearing and settlement, followed by asset storage and maintenance.
Primary markets and secondary trading are less likely to be severely impacted by the technology, according to BCG analysis, however, tokenization in these markets could provide better risk mitigation and higher liquidity.
DLT is starting to show increased levels of international adoption. On March 23, European securities clearing house Euroclear, which claims to have more than $40.9 trillion (€37.6 trillion) of assets in custody, announced that it would seek to integrate DLT into your billing process.
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However, there is still a lot of room for improvement when it comes to introducing DLT into existing financial systems.
Last November, the Australian Securities Exchange abandoned its plans to upgrade its 25-year-old clearing and settlement system with DLT, leaving a $170 million hole in its books.
The GMFA report comes just two months after investment bank Citi said the global market for blockchain-based tokenized assets could reach a staggering $5 trillion by 2030.