According to a latest Reuters report, the World Federation of Exchanges (WFE) has cited a lack of regulatory clarity as the main reason limiting the utilization of the blockchain technology for cost reduction purposes in share trading. WFE is the leading governing body for exchanges and has the CME Group, Deutsche Boerse, China Financial Futures Exchange, LCH.Clearnet, Japan Exchange Group, NASDAQ and Singapore Exchange as its members.
Big financial institutions have been entering the blockchain space in order to study the potential cost savings that the bitcoin technology can bring to the financial markets. Most experts are relying on blockchain development to reduce trading costs as it eliminates the need for third-party verification, but the most important use of this technology could be in easing the back-end processes such as clearing and settlement of trades.
In a statement on Thursday, the World Federation of Exchanges said,
Financial market infrastructures are uncertain about the extent to which the technology, particularly as applied to capital markets, will live up to its promise.
They also highlighted several risks that need to be addressed such as risks of maintaining security standards across a decentralized database, legal and regulatory uncertainty, and concerns around scalability.
The national governments have been taking it slow to clear legal and regulatory hurdles for blockchain, thereby curbing its application in financial markets. The blockchain technology has the potential to store huge amounts of data in a secure way, and can, therefore, be used to keep track of the transactions being made.
Apart from the lack of government interest in aiding its development, there could be vested interests in the preservation of existing systems, the WFE said. The trade body could be referring to big financial institutions who have huge amounts of money invested in the existing infrastructure, or there could be a political motivation to keep the system unchanged.