Unlisted Securities Trading on The Blockchain Cleared in France
France has paved the way for the trading of unlisted securities using blockchain technology, thus becoming one of the first nations to have a go at a reform of this nature and magnitude.
Tapping an Active, but Unknown Market
The decree, announced by Finance Minister Bruno Le Maire, is expected to come into effect starting July 2018.
If all goes well, the new policy will get rid of the role of middlemen such as custodial banks and brokers in the trading process. The unlisted securities market in the country is estimated to be valued at somewhere around $3.5 trillion (approximately €3 million), if not more.
Note that the new rule will strictly apply to only non-listed securities that can do without the involvement of a middleman as per existing EU laws.
“The use of this new technology will allow fintech firms and other financial actors to develop new ways of trading securities that are faster, cheaper, more transparent and safer,” the French Finance Minister said in a statement.
Practically speaking, blockchain technology will serve as an encrypted ledger to record transactions as “blocks.” These blocks will then be updated in real-time via a shared network of computers on the web rather than depending on a centralized authority.
The blocks make the whole transaction highly secure as all underlying changes coincide without requiring any involvement of third parties.
The only noticeable downside of this new regulation will be fewer employment opportunities for brokers. However, it will remain obligatory for listed securities to go through the usual clearinghouses and custodians.
It is worth noting here that not all FinTech companies seemed particularly excited about the new record-keeping technology until only recently. Some companies feared that tech enthusiasts in the finance sector would not be receptive to the blockchain because of the lack of clear regulations and standardization. All those concerns are likely to vanish now that the government has made room for the technology.
France is not the only country to have taken such an initiative. The Australian Securities Exchange is also reportedly planning to switch to a new blockchain platform to provide its customers with more secure transactions.
Growing Interest Comes to a Head
The French government has been increasingly showing interest in blockchain technology. However, until now the country did not have any significant initiative in the field to show for their efforts. In the aftermath of Brexit, the latest move aims to lure FinTech startups to Paris away from London.
The French Central Bank also seems keen on embracing blockchain technology, but not one of its most innovative applications; bitcoin. Only recently, the governor of the Bank of France stated that looking to invest in bitcoin were doing so at their own peril.