The Next Generation Capital Markets.

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Money flows in a manner that is like water – it follows the path of least resistance. The arrival of Distributed Ledger Technology (DLT) and the strengthening of it with smart contracts makes it inevitable that these technologies will now find their way into capital markets.

Where speed through execution and settlement, consistency, easier and continuous access, transparency, trust, the certainty of delivery, lower cost, traceability, scalability, and so on, and so on, are all good drivers for change. These automated methodologies are well proven. There are many others. This process of systems revision in capital markets is now happening in earnest. In my local domain, ASX has announced an implementation plan for evolution to the CHESS settlement sub-register that will use DLT at its core and contract modeling work-flows from Digital Assets.

Notably, ASX has avoided addressing the most obvious function for applying DLT – to trade matching. The trade matching market will continue operating under the current model at nine hundred trades per minute. Maybe there were doubts about DLT operating throughput at these trading levels. Or that too much radical change creates too much risk. The bad news for ASX is that doing nothing is also high risk. Capital markets have been a province occupied by big players – central government, national stock markets, national banks, global investment banks and member stockbrokers.

A happy alliance persists amongst these players akin to a mutual society existing primarily for the benefit of the principal actors and mostly closed to outsiders. They derive good and regular fees and there are many opportunities for the privileged gatekeepers to enjoy significant advantages at the expense of outliers. Especially the retail investors, whether invested through retail funds or directly, who are at the end of this food chain and who, at the end of the day, when everything is settled, absorb the whole cost.

JOHN PUTTICK
C.T.O, HCX

Chair at Tanda , specialist in financial and
education services. As founder of GBST he
guided this innovative leader in IT for the
financial services sector from embryonic idea
through to its listing on the ASX in 2005.
GBST provides technology services to the
financial services industry, addressing clients
needs for innovation, competitiveness and
responsive IT that truly enables their
business.

Hardly a process that ensures efficient allocation and utilisation of capital. These days new capital is often created from some form of intellectual property – a discovery, a better business model, a new technology. These discoveries can quickly become orphans for lack of capital from poor parents who have taken the headline risk to innovate and grow the idea through to some form of proof of concept. These ideas too often die at the gate due to exhaustion – exhausted parents with exhausted funds. They are crying out for sponsors. And the sponsors are abundant. But the threshold costs for raising capital kills the business case. Well not anymore.

DLT makes it possible now to fund these new ventures with initial and ongoing capital raisings that don’t involve substantial fees leaking out of the core business to support all the advisors to the raising. Examples abound of 8-10% IPO fees. Top ten investment banks made nearly $50bn in 2017 in fee income from IPOs and Bond issuances. So, it is with these thoughts, derived from a lifetime of experience in supplying systems to assist the automation of capital markets, that I am delighted to be able to offer my support, such as it is, to Himalaya Capital Exchange. A DLT venture, creating a revolutionary smart contract platform which is for and by end users and investors, addressing their market needs. I urge them on to ultimate success with their vision for a much better future.

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