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Blockchain in post-trade: Blocked by regulations and legal challenges
This paper analyses the reluctance towards the implementation of blockchain in financial markets and post-trade. It discusses possible barriers to replacing current post-trade systems with blockchain and distributed ledger technology (DLT). It focuses on the regulatory challenges facing post-trade operations. Blockchain and DLT have created considerable disruption to financial markets. Although the technologies increase efficiency, reduce costs and increase security, blockchain and DLT raise many challenges that work against current processes and regulations. It has been identified that post-trade functions potentially benefit from the implementation of new technologies such as blockchain and DLT. Many markets have launched different types of initiatives and pilots to test the application of blockchain or DLT. Many real final products on blockchain and DLT are, however, still in pilot stages. Of the various challenges impeding successful implementation, the highest identified obstacle relates to regulatory challenges. Regulatory challenges facing post-trade functions can sound the death knell as post-trade functions are highly regulated and very critical to the securities market. Legal concerns about the implementation of blockchain and DLT vary between the need for solutions and the need for upgrades in regulations. Some points require further investigations and analysis to solve such legal concerns. On the other hand, some points require the current regimes to upgrade and incorporate the new structure that blockchain and DLT follow. The new regulations need to create adequate governance on the new database and workflow to define processes and definitions that build trust in the new system and protect investors and data. All regulators need to investigate the need to update current regulations and introduce new regimes to govern the use of blockchain and DLT in current trades and trade processes.
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Haitham Al Salmi is the General Manager (Chief Executive Officer) of Muscat Clearing and Depository (MCD) — the national central securities depository (CSD) of the Sultanate of Oman. With over 16 years’ experience with different market players, Haitham has worn different hats in many areas — regulation, compliance, operations, business development, strategies and post- trade. He started with the Capital Market Authority of Oman as a regulatory inspector focusing on market intermediaries, investment banks, securities exchange and central depository. He then moved to the business side and worked with different market intermediaries. He started from a compliance role and rose to top management, covering all business aspects related to securities market operations. Through his experience, he worked with Gulf Baader Capital Market (GBCM), the largest intermediary in Oman, where he handled business development and all support functions. GBCM is part of Baader Investment Bank (Germany) that made the largest takeover of brokerage business from Bank Muscat, under his supervision. In the last four years, Haitham has moved to manage the national CSD company of Oman and has become very passionate in technology trends and upgrades.