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Blockchain and DLTs in capital markets: Risk, Politics and Regulation

Blockchain and DLT in capital markets: risks, politics and regulation Distributed ledger technology (DLT) has the potential to revolutionise securities trading and capital markets. DLT has been used to create virtual currencies (or crypto-currencies) such as Bitcoin and Ethereum and could create an alternative financial services system. It is an innovation that can facilitate peer-to-peer trades, bringing about a democratisation of financial services markets. Such a promise is based on the functionality of the DLT resulting in two changes: de-centralisation and dis-intermediation. To this end, the author investigates how DLT can be applied to the whole-life cycle of securities trade – listing (issuing), trading, clearing, and settlement – currently operated by financial market infrastructure (FMI) providers. The paper attempts to answer the following questions: will DLT bring bout the benefits it promises? Will de-centralisation increase market risks? Will dis-intermediation create more obstacles to securities trades? In particular, the author will assess the securities trading on DLT against systemic risk, market conduct risk, and operational risk to the capital market and consider the appropriate regulatory framework to enhance market integrity, operational safety and investor protection. Key words: DLT, blockchain, capital markets, investor protection, market safety, cyber security, RegTech, Fintech

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Amory B105