London Stock Exchange Group to Launch Blockchain-Powered Trading Platform
The London Stock Exchange Group (LSEG) has announced plans to establish a new digital markets business powered by blockchain technology. The new offering will make the LSEG the first major exchange to host traditional trading on blockchain, which can help enhance the efficiency of holding, buying, and selling traditional assets.
LSEG Exploring Blockchain for a While
In a recent interview with the Financial Times, Murray Roos, the head of capital markets at LSEG, revealed that the company has been exploring the potential for a blockchain-powered trading venue for approximately one year. After reaching what he calls an “inflection point,” LSEG has decided to move forward with its plans.
Roos emphasized that LSEG is not entering the realm of cryptocurrencies. Instead, they aim to use the technology underpinning crypto assets to enhance the efficiency of buying, selling, and holding traditional assets.
“The idea is to use digital technology to make a process that is slicker, smoother, cheaper and more transparent . . . and to have it regulated,” Roos said. Julia Hoggett, the head of the London Stock Exchange unit, will spearhead the new initiative.
Unlike other blockchain initiatives that cover only partial aspects of the lifecycle of financial assets, LSEG intends to cover everything from issuance to trading, reconciliation, and settlement. However, Roos clarified that the new digital market venture will not compete with LSE’s traditional business.
Furthermore, it is not a reactionary move to support their equities markets business, which has faced challenges in recent years due to a decline in initial public offerings. “We’re very committed to the London equity markets. What we are seeking to do is continue to do what London has always done and continue to innovate,” Roos said.
LSEG Considers Separate Legal Entity For Digital Markets Business
LSEG is exploring establishing a separate legal entity for its digital markets business. They aim to launch their first market in 2024, subject to regulatory approval. LSEG is already engaged in discussions with regulators in multiple jurisdictions, the UK government, and the Treasury.
Roos said their final goal is to create a global platform that enables participants from different jurisdictions to interact while “completely abiding by rules, laws, and regulations, potentially multiple jurisdictions simultaneously, which is something that hasn’t been possible in an analog world.”
He offered an example of a transaction involving a Swiss buyer, a Japanese asset, and an American seller, which would be “very difficult” to execute using conventional technology. However, in a digital world backed by blockchain, such transactions could be possible if LSEG gains the green light from regulators.
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LSEG’s Digital Markets and Tokenization
Per the FT report, LSEG’s digital markets business will initially concentrate on private markets, as this sector currently faces significant complexities and opacity. Once the model is proven successful, the company plans to expand into other asset classes.
“The technical opportunity of digitizing various traded asset classes is extremely promising,” Roos noted. According to data from the European Securities and Markets Authority (ESMA), only $800 million of traditional assets have been tokenized thus far.
Notably, tokenized Treasuries account for the bulk majority of that figure. According to data accumulated by rwa.xyz, the market cap for tokenized Treasuries has reached a staggering $635 million. The figure is up by more than 500% since the beginning of the year when the total value of tokenized Treasuries was just over $100 million.
Larry Fink, the CEO of BlackRock, has previously endorsed the tokenization of assets as the future of markets. “I believe the next generation for markets… for securities, will be tokenization of securities,” he said in an interview earlier this year.
Do you think other major exchanges would also launch blockchain-powered trading platforms for traditional assets? Let us know in the comments below.