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The Impact of Blockchain Technology on Stock Markets

Bitcoin and Blockchain

Blockchain technology, a decentralized digital ledger, enables information to be shared, updated and encrypted simultaneously to all users (public or private) in real time, which creates transparency, reliability and security. After gaining popularity as the technology behind bitcoin and ethereum, blockchain technology has significant potential to transform the stock market. The use of blockchain technology eliminates the need for intermediaries or third-parties when processing transactions. Startups and financial institutions around the world are taking advantage of blockchain technology, as they race to patent different platforms and expand its use from healthcare to the stock market. According to McKinsey & Company, “venture-capital funding for blockchain start-ups consistently grew and were up to $1 billion in 2017” and “approximately 90 percent of major Australian, European, and North American banks are already experimenting or investing in blockchain.” [1]

Implementing blockchain technology into the stock market could be beneficial for consumers, regulators, and exchanges. In 2017, the Securities and Exchange Commission (SEC) transformed the efficiency of buying and selling securities by amending Rule 15c6-1(a) of the Securities and Exchange Act 1934. The SEC cut the timeframe to settle broker-dealer securities transactions from three business days to two. However, the stock market continues to face inefficiencies due to timing. “Stock market traders, brokers, and regulators are requires to go through a cumbersome, and expensive, process … mainly due to the role of intermediaries, operational trade clearance, and regulatory processes.”[2] Integrating blockchain technology into the stock market could overcome many of these concerns. The decentralized ledger records transactions as they occur, while ensuring all obligations are met. Blockchain technology would eliminate waiting periods, cut costs, and when possible bypass the need for an intermediary.

Companies and institutions are eager to integrate blockchain technology due to its versatile, secure and efficient nature. For instance, not only can it be used as a digital ledger to track securities or hold digital wallets, but it has been used as the platform for initial coin offerings to raise capital and can be configured to meet specific regulatory requirements. McKinsey & Company reports that “[m]ajor current pain points, particularly in cross-border payments and trade finance, can be solved by blockchain-based solutions, which reduce the number of necessary intermediaries and are geographically agnostic.”[3] Using blockchain technology has the potential to revolutionize and transform stock markets on a global level. The reduced time, costs and increased efficiency and security would significantly benefit consumers and provide companies with greater international reach. For instance, in 2015 Nasdaq began using Linq blockchain to record private securities transactions for Chain.com. Nasdaq partnered with Citi Bank in 2017 to develop a platform to record and transmit payments.[4]

Although integrating blockchain technology into the global stock market has its benefits, there are still significant legal and regulatory hurdles. Regulators and governments have only just begun to assess the associated security risks when using a decentralized ledger and to set limits on financial institutions and companies using blockchain technology and cryptocurrencies. Once there is a more cohesive regulatory framework, global stock markets will be able to better navigate how they can integrate the innovative technology.


[1] Carson, B., Romanelli, G., Walsh, P., and Zhumaev, A. (June 2018) “Blockchain Beyond the Hype: What is the Strategic Business Value?” McKinsey & Compnay. Available at: https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value?cid=other-eml-alt-mip-mck-oth-1806&hlkid=d2c58d1171ab41a8a16e22859260e7cf&hctky=1874394&hdpid=6a0817ff-c71d-4a97-be68-b9b733f3d39f. Accessed on August 17, 2018.

[2] Ervin, E. (Aug. 16, 2018) “Blockchain Technology Set to Revolutionize Global Stock Trading.” Forbes. Available at: https://www.forbes.com/sites/ericervin/2018/08/16/blockchain-technology-set-to-revolutionize-global-stock-trading/#57b77f14e568. Accessed on August 17, 2018.

[3] Op. Cit. n1. Emphasis added.

[4] Bajpai, P. (June 12, 2017) “How Stock Exchnages are Experimenting with Blockchain Technology.” Nasdaq. Available at: https://www.nasdaq.com/article/how-stock-exchanges-are-experimenting-with-blockchain-technology-cm801802. Accessed on August 17, 2018.

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