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China’s Securities Association Highly emphasizes Blockchain

Recently, Ouyang Changqiong, the Deputy Head of Securities Association of China(SAC), representative of  National People’s Congress(NPC) and member Financial Committee of NPC,  noted that Blockchain technology will be taken seriously by SAC in the future:

” People now are pursing service-based economy in this internet age. At this backdrop, Securities Association of China will try to find ways to reform the securities company’s traditional business model  like  the application of mobile internet in brokerage business, by promoting research and innovation at application level in technologies including auto financial advisor, blockchain technology, big data, and cloud computing ” ouyang

 

In recent years, the overall profitability of the securities industry has dropped year by year owing to the fluctuation  of Marco-economy, the stagnancy of the stock market and the decreasing  transaction fees.  Hence China’s securities industry is in transition of innovation and transformation, a process which is also gained support by the industry regulators (editors note: SAC is under the supervision of CSRC, China’s Security and Regulatory Commission) and security companies.

Blockchain technology, which has become a global focus in these years, also attracts SAC as an important tool to achieve its vision of innovation. Blockchain can,without replying on a central authority, facilitate cooperation among those economic entities which don’t trust each other in the first place. It is a trust-building machine with decentralization, detrust mechanism, immutability and traceability. Therefore, in the security market, Blockchain technology can be used for registration and issuance, securities clearing and settlement services for stocks. It can massively simplify the transaction process, reduce transaction cost, improve market efficiency and help advance the settlement  of the transaction to achieve in full T+0, which is in the interest in promoting the healthy development of the capital markets.23

 

Then what problems can Blockchain technology solve?

1. Reduce the cost of the security registration

The registration of securities means to establish and maintain name list of security holders.It is an act of legal effect, for it will confirm or change the ownership of securities. It is also an important link to protect the legitimate rights and interests of investors and a key process to standardize security issuance and ownership transferal. In a centralized securities system, the securities registration requires the authority of public trust  to ensure the authenticity and consistency of the registration or change of  security ownership, which is reason why now we have the central registration and settlement institution.

2. Simplify the securities settlement process and Reslove settlement risks

Securities settlement is a process of  clearing and settling security accounts of sellers and buyers. Clearing is the process of calculating the amount or the numbers for each account while settlement is to deliver the cash or securities to the designated object of a trade.

Now all the global security exchanges are open to blockchain technology, like Australian Securities Exchange, USA Nasdaq,Deutsche Börse Group,Tokyo Stock Exchange and Korea Stock Exchange etc.

Though blockchain technology has already been the concern of the various financial institutions among China and global, Blockchain technology now still face some obstacles and it is not ready to be implement in actual security market. Those obstacles include a lack of  a efficient decision-making mechanism , a mature Blockchain technology  and of a  diversified business ecosystem.

As a result, institutions and regulators should accelerate blockchain’s research and development, enhance the supportive attitude towards and clarify the norms  on the blockchain technology in the securities industry so as to speed up industry innovation and market development.

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