FIX EMEA 2023: Old kids on the block – what blockchain technology means for traditional financial instruments and trading

At the FIX EMEA 2023 conference last week, one of the most talked-about topics was the issue of how blockchain and distributed ledger technology (DLT) can be utilised to increase trading efficiency.  

Few people would deny that DLT is one of the most exciting trends in the trading space. But with numerous different perspectives, what’s clear is that despite the appetite and ambition in the market, there is still some way to go before the technology becomes incumbent.  

“It’s a disruptive topic – we’re talking about removing some of the intermediaries out of the chain,” warned one of the panellists at a session entitled ‘Old kids on the block: What blockchain technology means for traditional financial instruments and trading.’ 

One of the key points of contention in the session was the definition of terms – highlighting the early starting point at which the industry remains. 

“DLT is not blockchain. It is the next step,” clarified one panellist. “Instead of having silos of data in many places, you can just have one ledger. It’s a layer than allows you to share immutable data between the parties that you trust. Usually, people draw a parallel between blockchain and DLT, but in fact it’s a subset of DLT. The way transactions are validated is by adding blocks to the chain. DLT is wider than that. It has vast applications – across CBDCs, post-trade – there is a lot of opportunity and there has been a lot of progress, but we still have a long way to go.”  

One of the biggest benefits of DLT, the panel agreed, was that everyone sees the same data at the same time. That increases trust, but it also brings its own issues – not least, because the end of the line could see a loss of data ownership. If data belongs to everyone, then it belongs to no one – and those who currently make money from owning data may not be so keen on that pathway.  

Pros and cons aside however, it looks as if there is no stopping progress. In a poll of the audience, 45% said their firm had already invested in tokenised bonds of equities, because the token economy and DLT will play a major role in the future; while 20% are working on a new product process to get it done soon.  

The panel noted that the key benefits of DLT for the current traditional trading model would be seen first for the buy-side: including a compression of the trade lifecycle, meaning that the speed with which they can redistribute their assets should increase, making things more efficient. “With the move to T+1, it’s estimated that up to 40% of capital could be redeployed,” said one panellist. “Imagine what atomic, T+0 settlement could do for the industry?” 

Interoperability is another key topic in the field of DLT, while the panel agreed that standardisation would be an important creator of efficiency in the traditional industry so will also be key when we talk about tokenisation and digital assets.  

Identifiers will also be crucial. “A new digital identifier is now being included in identifier fields within the FIX protocol,” explained one panellist. “A specific security type – digital – has also been added to FIX, which will be useful when distinguishing between different types of assets. A combination of identifiers may have to change to make this work, and all that is being built into FIX to help people do that.” 

Data is the new gold for the traditional industry, but it’s also key for digital assets. “We need data in real-time, on a millisecond basis,” said a panellist.  

Overall, the conclusion was that though the potential is immense, there is still much work to be done before traditional trading protocols can truly benefit.