Seven large financial institutions – including Euronext, BNP Paribas Securities Services, Societe Generale and Euroclear – have teamed up in the latest industry consortium aimed at developing blockchain-based services for capital markets.
The firms, which also include S2iEM and Caisse des Dépôts, announced on June 21 that they had signed an agreement to set up an independent company that will use blockchain technology to create and deploy post-trade services aimed at small and medium enterprises.
The collaboration is taking place through Paris Europlace, a broad-based French industry group.
By using distributed ledger technology to power these new services, the consortium aims to lower the transaction costs involved in services such as clearing and settlement of SME shares, thus making it cheaper and easier for smaller companies to access the capital markets.
The companies said in a joint statement: “By pooling our strengths in this ground-breaking area, we are focusing on new solutions that will give small and mid-sized companies – key factors for growth in Europe – easier access to the financing they need. With this project, we are securing the means to seize opportunities that blockchain distribution can offer: speed of execution, low cost and security.”
Anthony Attia, chief executive of Euronext Paris, told Financial News that each member would invest equally, giving the company total capital of between €5 million and €10 million over the next two years.
He added that the group was open to other international partners, and would also consider using a third party to provide the company’s technology.
Attia said the aim was to make a “more mature blockchain technology that people can use”, adding that it was part of a new regulatory environment in France that allows the issue and trading of securities via blockchain technology.
Blockchain is a shared ledger of transactions that is maintained by a network of computers on the internet. As changes to the ledger do not need to be validated by a centralised authority, settlement can happen in seconds rather than days as is the current standard in capital markets.
Over the past year, banks and other large financial institutions have been joining forces in industry consortiums to develop blockchain-based applications, in the hope that it can bring down post-trade and back office costs. New York-based blockchain startup R3 runs a consortium of more than 40 of the world’s largest banks, while several well-known firms are collaborating through the Post Trade Distributed Ledger Group.
The Paris initiative also underscores a growing effort by European exchanges and market structure companies to make it easier for SMEs to tap the capital markets for financing, as funding from banks has dried up following the crisis. Euronext in 2015 launched a series of measures to attract tech companies to its markets. BNP Paribas Securities Services in April revealed that it had partnered French crowdfunding company SmartAngels to develop a blockchain-based platform for private companies’ share issuance.
Also on June 21, post-trade service provider Euroclear announced that it had teamed up with startup itBit to develop distributed ledger-powered solutions to settle gold trades. It is the first blockchain initiative targeted at the settlement of physical gold, the companies said in a statement.
The initiative is aimed at developing a service that will simplify the capital-intensive settlement of the commodity, the companies said. Switching to a faster settlement cycle through the blockchain could free up some of the bank capital set aside to protect from settlement risk, making banks and other financial institutions more capital-efficient, blockchain supporters suggest.
Angus Scott, director for product strategy and innovation at Euroclear, said in a statement: “As an open and resilient infrastructure, our strategy has been to work with relevant industry stakeholders. We have also created an advisory group, which recently convened to discuss the building of the new service with the ambition to make the London bullion market more efficient.”