Stock Exchanges and Blockchain: Open Positions

  • Carlo R.W. de Meijer, Economist and Researcher at Independent at Financial Services Advisor

  • 06.07.2017 11:15 am
  • undisclosed

Just like banks, a growing number of exchanges worldwide have already taken a serious look at the way they can leverage blockchain technology. This in order to ‘get rid of’ the existing time consuming, cost inefficient and risky operations. Ranging from Abu Dhabi to Toronto they are experimenting with various use cases ranging from settlement, over-the-counter trading to proxy voting. Others have just started and have or are having hosted blockchain events such as the Jamaica Stock Exchange (Blockchain Masterclass) and the Tel Aviv Stock Exchange (Hackathon) not wanted to be left behind. In this blog I will make a ‘tour de table’ (in alphabetic order) around the various blockchain-related activities of stock exchanges worldwide.

Exchanges: Tour de Table

Abu Dhabi Securities Exchange (ADX)

The Abu Dhabi Securities Exchange (ADX) has started implementing blockchain technology, enabling shareholders to participate ‘with further transparency’ while using e-voting techniques. The technology was used recently (end March 2017) at the annual general meetings (AGM) for six listed companies, including two private joint stock companies and four public joint stock companies, on the ADX.

"I encourage companies to use blockchain technology. I am confident that more training and practice of this technology will widen positive outcomes and bring more companies to use this technology. This will go in line with Abu Dhabi 2030 Economic Vision that seeks to strengthen digital transformation in the UAE." Rashed Al Blooshi, ADX chief executive

Australian Stock Exchange (ASX)

One of the forerunners in the blockchain race is the Australian Stock Exchange (ASX). The ASX already announced early 2016 that it had teamed up with blockchain startup Digital Asset Holdings to develop a new distributed ledger solution for investors, listed companies, and intermediaries, for clearing and settling trades. This to replace the existing Clearing House Electronic Subregister System (CHESS). 

The exchange has now completed the initial phase of its DLT testing, and their blockchain prototype has ‘met performance, security and scalability thresholds’. The company’s shareholders report, released in February, stated that the ASX is on track for a decision in late 2017 on whether distributed ledger technology (DLT) represents a suitable replacement for the ASX’s CHESS system. The final decision on the company's post-trade infrastructure will be made in 2018. Only then will a blockchain solution progress into full production

The ASX recently built a dedicated blockchain showcase space, called ‘acceler8’, in their Sydney headquarters. The set-up of a ‘purpose built demonstration suite’ is aimed to ‘bring to life’ the possibilities of distributed ledger technology, to help stakeholders understand what is possible.

“It is one thing to talk about blockchain, but in order to really understand its capabilities, you need to see it in action.” Peter Hiom, ASX deputy CEO

Deutsche Börse Group

Deutsche Börse Group has been making substantial investments in the development and introduction of ‘state-of-the-art’ blockchain services. The German exchange is working on several prototypes related to blockchain technology and DLT.

Recent developments include a solution for cross-border securities transfer in cooperation with the Liquidity Alliance and a functioning prototype for the settlement of securities transactions in cooperation with Deutsche Bundesbank, Germany’s central bank.

Deutsche Börse and Deutsche Bundesbank presented their first functional prototype for the blockchain technology based settlement of securities transactions against instant and delayed payments in November 2016. This concept is based on a blockchain from the Linux Foundation’s Hyperledger project, and will allow for functionality for the settlement of securities in a delivery-versus-payment mode for centrally-issued digital coins (as collateral).

“Along with the Deutsche Bundesbank we are innovatively and creatively addressing potentially radical technological opportunities for the financial sector. We will continue to do our utmost to leverage blockchain's efficiency potential and to better understand and minimize the associated risks of this technology.” Carsten Kengeter, CEO of Deutsche Börse

The system will also be capable of settling basic corporate actions such as coupon payments on securities and the redemption of maturing securities. Next to that the prototype will enable the maintenance of confidentiality and access rights, which will be done in a blockchain-based concept on the basis of a flexible and adaptable rights framework.

The Deutsche Bundesbank and Deutsche Börse stated that they plan to further develop the prototypes during 2017. They said that the developed products will be used to “analyse the technical performance and the scalability of this kind of blockchain applications”.

Euronext and others develop blockchain infrastructure for SME post trade

Euronext (Amsterdam, Paris and Brussels) and a number of financial institutions including names like BNP Paribas Securities Services, Caisse des Dépôts, Euroclear, S2iEM and Société Générale, in collaboration with Paris EURPLACE, last year June signed a Memorandum of Understanding to explore together the development of a post-trade blockchain infrastructure for SMEs in Europe.

“We wanted to engage collaboratively in order to mount an innovative project with the potential to drive the transformation of the post-trade market. By pooling our strengths in this ground-breaking area, we are focusing on new solutions that will give small and mid-sized companies -- key actors 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.”

Open to other international partners, this pilot agreement aims to improve SMEs' access to capital markets while facilitating secure and transparent post-trade operations. It is part of the development of a new regulatory environment in France that allows the issue and circulation of securities using blockchain technology.

Mission will be to harness blockchain technology in the design, development and deployment of innovative solutions for post-trade. By reducing transaction costs while maintaining a high level of security, the company would help SMEs raise funds more easily on capital markets.

National Stock Exchange of India (NSE)

The National Stock Exchange of India (NSE), HDFC Securities, along with a group of domestic Indian banks are collaborating on a know-your-customer (KYC) data trial, testing blockchain technology. Blockchain startup Elemential provided the technology for the trial. 

The NSE has been testing the tech since as early as September last year. The test involved a shared environment in which the stock exchange would on-board customer data, while different entities (banks and regulators) could access this information in real-time. The first stage of the trial was completed in January. The next stage is expected to see the use of real customer data.

Japan Exchange Group (JPX)

Early last year, it was revealed that IBM had teamed up with Japan Exchange Group (JEX), which operates the Tokyo exchange, to start experimenting with blockchain technology for clearing and other operations. The Japan Exchange Group (JPX) and IBM are working towards testing the potential of blockchain technology for use in trading in low transaction markets. JPX is embracing a proof-of-concept that is investigating how blockchain could be used to create new systems for the trading of low-liquidity assets.

They had run two separate trials and concluded that digital ledger technology “has the potential to transform capital market structure by encouraging new business development, improving operation efficiency, and contributing to cost reduction”.

JPX is also working on trials with Nomura Research Institute (NRI) to examine how blockchain technology could be applied in the securities market. 

Korea Exchange Exchange (KRX)

South Korea’s securities exchange operator the Korea Exchange (KRX) launched a blockchain-powered platform for the off-board trading market, linking sellers and buyers to trade securities. This platform named Korea Start-up Market (KSM), is an OTC- platform for using blockchain technology to enable equity shares of startup companies to be traded in the open market. South Korea’s exchange was revealed to be developing a blockchain platform to facilitate securities trading between buyers and sellers, directly, as early as March 2016.

The new feature will see its roll-out by implementing a blockchain platform called ‘Coinstack’, developed by Korean startup Blocko. With a focus on document and identity authentication, Coinstack is serviced both via cloud and on location, while supporting all protocols and applications build on the blockchain technology.

“This is the first example of commercialization in which blockchain is applied to the Korean over-the-counter market. Notably, the Coinstack development platform supports both Bitcoin blockchain-based contracts and Ethereum-based smart contracts.” Blocko CEO Won-Beom Kim

London Stock Exchange (LSE)

The London Stock Exchange (LSE) has emerged as one of the most active on blockchain technology. In late 2015, the exchange was already among a cross-industry group of institutions investigating how blockchain technology could be used to change the way securities trades are cleared, settled and reported in Europe. The group — named Post Trade Distributed Ledger Working Group — also includes UBS, CME Group, Societe Generale, LCH.Clearnet and Euroclear. The consortium, which is particularly interested in using blockchain for post-trade processes, now has nearly 40 members. 

Luxembourg Stock Exchange

The Luxembourg Stock Exchange has already introduced a blockchain-enabled security system, where the officially generated Signature by Appointed Mechanism (OAM), along with document type and document URL are stored in the blockchain ledger. For that the Luxembourg Stock Exchange (LuxSE) has added an extra layer of security into the certification process with the introduction of a ‘digital signature’ on all documents publicly disclosed by issuers using Ethereum’s blockchain technology. This new functionality that is already active and available with no supplementary fees, will enhance security for issuers and transparency of LuxSE’s certification service.

“Blockchain certification is an effective way to record the proof of existence of a document. Its continuous revalidation process makes it virtually impossible to spoof.”

“By introducing Ethereum’s blockchain technology into the certification process, LuxSE is providing a "digital signature" that will ensure authenticity and proof of existence of all documents filed in the OAM .”“By combining the security benefits of the blockchain with the electronic signature of the certification authority, LuxSE is able to create a highly secure and reliable decentralised infrastructure to store information relating to the “proof of existence” of such documents indefinitely.”Bernard Simon, Chief Information Officer at LuxSE

Malta Stock Exchange

Malta’s stock exchange also has started experimenting with blockchain-based trading. The exchange has focused on creating an internal “Blockchain Committee” to guide the development of a strategic roadmap for testing this technology.

“……. the Malta Stock Exchange Blockchain Committee, a think tank which will bring together experts from the Exchange’s stakeholders as well as from other organisations throughout Malta to share knowledge and perhaps joint venture on the design and implementation of blockchain applications”. 

Moscow Stock Exchange (MOEX)

The Moscow Exchange (MOEX) successfully conducted an e-voting for bondholders via blockchain at the National Settlement Depository (NSD). The pilot version is expected to be launched during 2017. The solution was designed in large part to give investors increased confidence by providing a cryptographic proof that the tokenized votes they cast from anywhere in the world are properly counted.

"You avoid miscounting and double-spending because of tokenization. You count inside the blockchain and you put the results inside it. That's cool for foreign investors, because in the case of Russia, we need the trust from outside." Alex Yakolev, Moscow Exchange Group head of decentralised solutions

The e-voting platform, as well as a blockchain solution for recording commercial papers, are now being implemented in Russia's National Settlement Depository (a division of the Moscow Exchange Group), in tandem with a proxy-voting service that lets any qualified stock owner vote without revealing any information about themselves.

"Because of tokenization, you receive real trust because it is the same as cryptocurrency." “Yet regulators and others will still be able to see certain information as is required by law. You can trace the [data] if you have special rights." Alex Yakolev, Moscow Exchange Group head of decentralised solutions

Myanmar’s Yangon Stock Exchange (YSX)

Daiwa Securities Group, a Tokyo-based securities brokerage, will be working with Myanmar’s Yangon Stock Exchange (YSX) to establish a blockchain-based stock exchange by integrating Daiwa’s equity trading into the Yangon exchange platform. YSX will be the first reported stock exchange to publicly trade equity on a blockchain-based exchange.

Daiwa and YSX are currently testing the Blockchain platform and are in discussions with government officials to fully use the blockchain concept for all YSX trading within a period of two years, after completing months of successful testing. According to Nikkei, on the assumption of using blockchain to connect the Yangon Stock Exchange and local brokerages, the test was conducted to investigate how the system would work in the country, which is often “hit by power outages and phone lines going dead”.


Nasdaq has been an outspoken supporter of the blockchain technology on Wall Street. The Nasdaq stock exchange has made significant investments in blockchain technology. Already in May 2015, Nasdaq started investigating blockchain technology for its Private Market. The testing resulted in a blockchain private trading platform named Linq, to be for companies not listed on a stock exchange.

The Nasdaq has announced the first ever private securities issuance using Blockchain technology. Linq and blockchain technology provider Chain showcased how blockchain technology can “successfully complete and record a private securities transaction.” The shares were issued by to a private investor using Nasdaq’s new Linq system. In May this year Nasdaq and Citi announced an integrated payment solution using distributed ledger technology to record and transmit payment instructions based on Chain’s blockchain technology.

Santiago Stock Exchange (SSE)

Santiago Stock Exchange (SSE), Chile’s largest stock exchange is planning to implement a blockchain technology solution by partnering up with IBM. This project is aimed to build a blockchain-based securities lending solution. The new tool will help enable Chile's securities lenders, banks, stock exchanges, institutional clients and regulators, to exchange information, while significantly “reducing the time it takes for relevant back-office processes by 40%”.

“The solution is designed to help reduce errors, possible fraud and processing time for each transaction, while also improving the transaction management and lowering costs”.

"We spend two-to-three days after trading signing contracts, adding the assets, and the intermediary needs to create the collateral, all of that will now be put in a block that will be queried by different intermediaries."

 “It's not the trading process – where certain ownership rights associated with a stock or derivate are traded in exchange for collateral – that is being automated, but rather the complex process that supports such economic activity.”

“We will now seek to create a private blockchain network for the exchange of this information, whereby participating banks and regulators will also operate nodes. The key thing that blockchain will provide is transparency related to the collateral in the lending short sale. Regulators and pension funds here in Chile, they have to know who the lender and the borrower are, and what kind of collateral they have in transactions” Andres Araya, CIO Santiago Stock Exchange

The idea is to run the blockchain-based system in parallel with its existing system over the next three-to-six months, with the goal of migrating the process completely to a distributed ledger next year. By the end of the year, the goal is to begin using the system to track collateral relationships.

Stock Exchange of Hong Kong (HKEX)

The Stock Exchange of Hong Kong is looking at upgrading its stock exchange infrastructures using the blockchain.

 “In 2016 we started to look at the role new technologies (such as cloud computing and distributed ledger) can play in our future development and this will continue in 2017 when we will determine our NextGen roadmap.”

“Our Next Generation Clearing initiative is more than a refresh of existing technology. We aim to make significant enhancement in technology, risk models and business processes in this upgrade.” Charles Li, Chief Executive of Hong Kong Exchanges and Clearing Limited (HKEX)

Tallinn Stock Exchange

Nasdaq had revealed its plans to use both The Tallinn Stock Exchange and The Estonia Central Securities Depository to develop several blockchain applications. Both platforms are operated by Nasdaq. Nasdaq has a contract with the Estonian government to use blockchain to improve processes like shareholder proxy voting, company registration and public pension registration. In the meantime, Nasdaq has launched a pilot program in Estonia to use blockhain for shareholder-proxy voting.

Nasdaq revealed that “it is working to develop a trial with the Nasdaq OMX Tallinn Stock Exchange in Estonia to use blockchain technology to reduce barriers preventing investors from participating in shareholder voting”.

Stock Exchange of Thailand (SET)

The Stock Exchange of Thailand (SET) plans to launch a blockchain-based marketplace by the third quarter of 2017, for trading in startups. The blockchain marketplace will be operated by SET, and will involve the investors of both SET as well as the Market for Alternative Investment (MAI), which is a stock exchange for smaller firms and startups.

“With the aid of blockchain technology, there will be no restrictions in the trading units. “SET president Kesara Manchusree

“The marketplace is expected to get extended to SME traders as well in the later stage”. “There will be few qualification requirements for those startups that will raise funds in the marketplace. Also, the types of investors are limited for the SMEs and startups marketplace since they are higher-risk by nature”. “The startups that want to mobilize funds from this marketplace must register with the authorities, conduct business with transparency and have a single financial account,” Santi Kiranand, senior executive vice-president and chief marketing officer of the SET

Toronto TMX

The Toronto-based TMX Group, operator of the Toronto Stock Exchange, announced the development of a blockchain based prototype to ‘power’ a new service of offering from Natural Gas Exchange (NGX). According to TMX “the NGX use case for the prototype also has the potential to enhance delivery and payment processing, mitigate the risk of, and expedite remediation of, supply short falls, and provide secure transactional data”. 

Open positions of exchanges towards blockchain technology

The number of exchanges worldwide that is joining the many financial institutions in the blockchain and distributed ledger technology race is continuously growing. The potential to enable stock exchanges to significantly reduce the cost, complexity and increase the speed of trading and settlement processes in a secure manner, has attracted many exchanges worldwide to explore this new technology. However, it remains to be seen whether blockchain will soon be accepted by exchanges on a large scale and form the backbone of future stock exchanges. This given the many remaining challenges. But the optimism is certainly high. For the time being stock exchanges are taken open positions.

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