FINRA, the self-regulatory body for securities traders, this week issued a white paper describing the ways that blockchain technology might impact the securities industry.
The report will be closely read, because securities trading is one of the financial service sectors that some advocates believe is most ripe for disruption by blockchain — the technology underlying bitcoin and other digital currencies — which uses cryptography and distributed computing to produce an unforgeable record of a transaction shared among all the parties to it.
Many in the financial sector believe blockchain, also known as distributed ledger technology, or DLT, could revolutionize settlement by allowing parties to make and verify transactions on a computer network instantaneously without a central authority. But some observers point out that if buyers and sellers have that capability, they might not need traders at all.
FINRA said in a statement that it “welcomes an open dialogue with market participants to help proactively identify and address any potential risks or hurdles in order to tap into the full potential of DLT, while maintaining the core principles of investor protection and market integrity.”
The report lists a range of possible impacts the technology might have on on the business: market efficiencies, transparency, the role of intermediaries and increased operational risk.
It also poses a series of questions — about governance, liability and network security — that traders will need to consider as they implement blockchain.
“This paper is intended to be an initial contribution to an ongoing dialogue with market participants about the use of DLT in the securities industry,” FINRA states, saying it would solicit public comment on the paper and other germane blockchain issues until March 31.