The financial industry is undergoing a revolution. And I do not mean the ascendency of the fintechs, undermining the monopoly of the banks, or at least influencing their business model, especially after the implementation of the newest directive on payment systems. I do not mean either the growing competition between the stock exchanges, and the total abandonment of the concept of a ‘national stock exchange’, even though this is something we are increasingly seeing.
And even for someone who has been interested in the trends and streams beneath and within the world of the stock exchanges, such names as the Gibraltar Stock Exchange (obviously functioning out of Gibraltar) or TISE – The International Stock Exchange (from Guernsey, with offices in Guernsey and the Isle of Man), are new.
Nor am I referring to the shake-up brought to the markets by MiFID II, which was supposed to improve the protection of investors’ interests, but which caused a rise in transactional costs and a lot of formalities which do not fit the needs of the innovative or emerging markets.
All these changes have been part of an evolution of the markets towards stock exchanges which are less like public utilities and much more like for-profit organisations, towards higher volumes of cross-border transactions, towards over-regulation and restrictions imposed on the flows of capital. And all the while the EU has been evoking the need to improve access to financing for small and medium-size enterprises.
What we are facing – or what we are already participating in – is blockchain technology accompanied by solutions powered by artificial intelligence and completely new methodologies for storing and processing information and data. Blockchain, the core of revolutionary change, is not only a ‘technology’, but is a philosophically new way of doing business, not only in the world of finance.
Blockchain will dictate new rules in the trading and the post-trading environments, which means, for instance, that it will render obsolete the concept of the central storage of data and information, and the very way of thinking about the central institutions responsible for the management of dematerialised securities, such as central securities depositories. Certainly, they may try to adapt to the new situation, and they are one of the best suited to undertake the challenge. They will adopt and develop the blockchain-based approach to their usual business, and they will also start applying, for instance the AI solutions to run their businesses smoothly and competitively. Yet they will not be needed anymore, with their main capacity – which was to serve as a guarantee of reliability and credibility, to be the central institution of the system – having been made irrelevant. Blockchains redefine the notion of the system itself and makes what is ‘central’ unnecessary.
Traditional trading venues, whether they be conventional stock exchanges, or other regulated marketplaces (such as multilateral trading facilities) will rather survive, although their role in the system as the organisers and generators of liquidity will very likely be further diminished. Here an important factor will be the recognition and widespread use of tokenisation, to convey the value of the business in the secondary markets and to enable fundraising. And even if it will be treated, from the regulatory point of view, similarly as the equities and other types of traditional financial instruments (hopefully their specificity will be saved), it is clearly a substantially new way of getting financing or concluding a transaction in underlying assets.
It is admirable to see how fast some countries and societies have acknowledged the appearance of this revolution at the gates and have created conditions for the actors of this revolution to thrive. Take Switzerland: the country which built its fame on financial conservatism, confidentiality and secrecy, which has decided to become the world’s most friendly environment for coin offerings, smart contracts, cryptocurrencies, tokenisation.
Therefore, we have a great chance to observe the renewal of capitalism. Nobody is safe, because every new entrant may become a new legend.