Sell Side Forges Ahead with Ambitions for Live Blockchain

John reviews recent announcements from blockchain consortium R3 and the Digital Trade Chain Consortium

Blockchain graphic
Could Google's fine have a chilling effect on future innovation?

John considers the merits of two blockchain-focused groups making announcements of progress this week, and Google’s $2.7 billion fine for allegedly fixing search results.

Regardless of how jaded people may be of hearing about distributed-ledger technology (DLT) projects, prototypes or proof-of-concepts, the industry is nonetheless forging ever onwards, both in terms of financial investment and research efforts, driven by the participation of the sell side.

This week it was the turn of both R3 and the Digital Trade Chain Consortium (DTC) to announce new developments regarding their respective efforts to get DLT live in the capital markets as soon as possible.

R3 seems to have recovered from a few setbacks at the end of last year, as big-name banks such as JPMorgan, Goldman Sachs and Morgan Stanley departed the consortium. In May, the group announced it had raked in $107 million from one funding round, following that with announcements earlier this month that its Corda platform had entered public beta and a collaboration with the International Swaps and Derivatives Association (ISDA) to standardize data, legal documentation and business processes for smart contracts.

Now R3 and four of its bank members—ABN Amro, Commerzbank, ING and KBC—have developed a prototype solution for the issuance of euro commercial paper on the Corda platform. The project tested a distributed ledger that records, executes and manages institutions’ financial agreements that differ from the issuer’s domestic currency.

Meanwhile, the DTC (not to be confused with the DTCC) picked IBM to develop a blockchain-based international trading platform, utilizing the blockchain framework Hyperledger. The group was established in January this year, and features institutions including Deutsche Bank, HSBCRabobank, Société Générale. The platform will be based on Belgian-bank KCBs blockchain prototype, with IBM now taking on responsibility to bring a solution to market that will allow all participants in domestic and cross-border trade greater transparency and connection to the trade process, both online and via mobile devices.

Both projects seem well-intentioned and supported as sell-side institutions continue to throw their weight into blockchain development, although not overly ambitious given how enthusiastic some of DLT’s more outspoken advocates can be on the technology’s potential to disrupt the institutional investment process.

As ever, progress in this space should be welcomed but not lauded too highly—DTC claims production is expected to start at the end of the year, while R3 only mentions “possible production.”  Until this happens and tangible evidence is presented, it seems to me that the blockchain is still very much a solution searching for a problem.

My colleague, James Rundle, recently wrote about how the blockchain is being developed with an “everything for everyone” mentality and it’s well worth a read.

Google “Antitrust”

Yesterday Google was hit with a €2.42 billion ($2.7 billion) fine by the European Commission (EC) for allegedly skewing search results to its own shopping services over its competitors. While this isn’t related to the capital markets, it’s hard not to take note of the size of the fine—the largest ever handed down by the EC—and the clear message that comes along with it for tech companies that are increasingly involved in almost all facets of professional and private life.

We are used to seeing banks being given larger monetary punishments by their regulatory overseers, but for a tech company to be given such a substantial fine speaks volumes about how seriously the EC is now taking their pervasive presence—and accompanying degree of power.

In reaction, the president of science and tech policy think tank, the Information Technology and Innovation Foundation (ITIF), Robert D. Atkinson, said that the fine was bad news for consumers and innovation alike: “The EU’s actions have created a cloud of uncertainty that will make large tech companies overly cautious about making changes to the user experience and service offerings that would benefit consumers. “

Firms like Google, Amazon and Apple have all encroached to varying degrees in the financial markets and many are making serious inroads with infrastructure, including cloud services. Regulators are right to treat this trend with caution, but the “too big to innovate” warning from the ITIF takes things a little too far, in my view. Smaller vendors won’t be put off by the size of the fine and will continue on their own paths, while the larger participants won’t stop ploughing forward either, there’s far too much future market share on the line to stop now.

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