| | OCTOBER 20218IN MY OPINIONAgnelo Marques, VP - Technology & Head - Blockchain CoE, MphasisMOVING TOWARDS A BLOCKCHAIN ENABLED CAPITAL MARKET INFRASTRUCTURE How do you see the adoption of blockchain technology in capital market? What are the major factors driving its implementation in the segment? The fundamental goal of capital market is to facilitate a trade between a buyer and a seller. In traditional markets, this requires a range of intermediaries including brokers, clearing houses, custodians, banks, and regulators. While charges are higher and time required to complete the settlement for liquid securities T+2 is long, the process itself is inefficient. A blockchain-based capital markets can help by reducing reliance on intermediaries and automating trades and settlement through Smart Contracts. This could lead to lower costs, reduce the turnaround time, and improve efficiency of the process. There is no use case that cannot leverage blockchain technology gainfully and fundamentally every component of capital market could be reimagined and built on blockchain, benefiting all members of the ecosystem including regulators, government bodies and central banks. Blockchain can be used in debt, equity and derivative markets, wherein the underlying security represented as a digital token can be traded online. Further to that, various market functions such as clearing, and settlement could leverage blockchain for efficiency gains and time to market improvements compared to current traditional mechanisms. As smart contracts solutions replace clearing houses, regulators are concerned whether an automated, decentralized blockchain will serve the purpose effectively. What are your thoughts on this?A Smart Contract is code that is embedded into the blockchain and through codified instructions they enforce terms of agreement. The Smart Contracts system ensures that the enforcement is automatic, making it possible to execute the terms without the need of an intermediary. This is not something that we have normally experienced in traditional systems leading to concerns, which are sometimes valid too. In the past, there have been incidents relating to the security of Smart Contracts, resulting into financial loss, for example the famous DAO (Decentralized Autonomous Organization) attack leading to the theft of $150 million. It is important to note that the theft was caused by hackers who exploited a software bug in the Smart Contract code. Software bugs are not uncommon, and while a non-bug-free software in traditional systems can sometime get through, that is not the same for Blockchain and zero-defect Smart Contract code is essential. What is important to note in the DAO case is that the code was buggy, and had it been tested more rigorously, the incident could have been avoided. In mission critical software development for airplanes, electricity grids, defense systems and trading systems rigorous testing, which include multiple testing techniques, audits, automated as well as manual analysis are carried-out. `Prevention is the only cure', we would have heard this before, and that is the only way to manage potential issues when using well tested Smart Contracts in Blockchain systems that are used in capital markets. Also, with blockchain solutions becoming prominent, there is now a concept of a network governance organizations. These are mostly not for profit setups with elected member who help define process, policies, and testing & audit of Smart contracts for a smooth and successful operation of the networks. Regulators' concern can be put to rest by including them as part of the network governance team and help define required process, policies and gate keeping of new software being deployed on the capital markets In a conversation with CIOReview India, Agnelo Marques, VP - Technology & Head - Blockchain CoE, Mphasis shares his views on the challenges in adoption of blockchain technology in capital markets, and ways to address them.
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