The Future of Capital Markets 2022

The digital switch is coming to capital markets

Bankers, issuers and technology companies are scrambling to develop technology to overhaul how capital markets operate, a new report from OMFIF finds.

The report features a survey of public sector borrowers conducted by OMFIF that reveals insights into their plans and expectations for digital bond markets — particularly that they see a move to digital financial instruments as an inevitability.

Around half of survey respondents said that they will have launched a pilot blockchain bond within the next three years, with around three-quarters saying that they either are or intend to start applying new technology to their bond issuance process.

The report includes insights from an extensive range of experts, detailing their efforts to modernise the systems underpinning capital markets, including the ways distributed ledger technology and blockchains might be used to increase efficiency, reduce risk and create new business opportunities, particularly in the ESG sector.

There is a broad range of technologies being explored to improve the functioning of capital markets. Some focus on automating the production of documentation, streamlining the process and removing risk. Others are working on changing the nature of securities themselves, creating digitally native instruments, where ownership is registered on a blockchain. These ‘smart securities’ could have powerful capabilities, like automating payment flows, provided they are integrated with a digital currency.

For some, this technology represents an opportunity to disintermediate or replace certain aspects of market infrastructure — custodians, central securities depositories and paying agents — with technological platforms. However, many market experts feel this is unlikely and that these institutions will find a means of adapting and improving their services with new technology.

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