30 August 2016

ALFI response to ESMA Discussion Paper on the Distributed Ledger Technology Applied to Securities Markets

ALFI agrees with the benefits explained by ESMA. As a fund industry body, they believe that faster clearing and settlement and record keeping are the two most significant benefits for the fund industry as a whole.

Positions could be updated and stored on a distributed ledger that is shared between the fund accountant, the custodian, the asset manager and the regulator.

ALFI also see important benefits in terms of reporting and data sharing between the different actors of the fund industry (Fund accountant, Transfer agents, Custodian Bank, Regulator, Auditors and Asset Managers). Sharing of fund positions, transactions and record of ownership via a DLT between these players would significantly increase efficiency in operations.

In order to fully benefit from the DLT, the industry should ideally apply the technology to the whole market infrastructure. However, technological aspects of this infrastructure cannot be changed overnight. The application of DLT will inevitably be done in phases and limited to some activities only. This will require to develop interfaces so that old and new technologies can inter-act.

The industry might also struggle to connect the different DLT technologies –that have been developed separately – in order to obtain a full DLT lifecycle for securities.

Finally, when analysing benefits of the DLT, ESMA should also consider whether the financial industry as a whole will be able to collaborate to put a DLT in place or whether a single market player or a new entrant could impose its standards.

The DLT has the potential to disrupt any parts of the market where there is a need of transfer or record of value – hence typically regarding securities. The post trade domain will probably be one of the most relevant activities for DLT disruption in the securities area, as per a general industry consensus.

Full response

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