Blockchain will soon revolutionize our opaque and inefficient capital markets

Over the past several years, much has been said about blockchain’s potential to fix a myriad of issues from money transfers, to digital voting, to supply chain management, to land title transfers. However, one of the most compelling use cases for this technology is how it will change capital markets.

Throughout my career, I’ve witnessed time and again how outdated processes can bring trading to a grinding halt or how complicated it can be for start-ups to raise money.

I received a call from my team around lunchtime one Friday during the summer of 2018. The operations person at the large bank holding the shares for our client had left early for the weekend. Before he left, he forgot to release the shares for settlement of the equity offering we had placed earlier in the week. We had to borrow the shares in the open market to complete the settlement.

The situation left me wondering how large financial transactions could still be derailed by a single person taking a summer Friday off. And this was not the first time in my decade-long career on Wall Street that a human error left a team scrambling to execute a transaction.

I cannot count the number of times I have told companies that we don’t know how many of their shareholders there are because the limited ownership disclosure requirements and lack of technology do not provide that type of clarity with any degree of certainty and timeliness.

There are dozens more examples of frictions, inefficiencies, costs and opportunities for human error and mischief in the business of trading securities, but one of the most significant is that equity trades still take three days to settle (T+2). In 2019, it still takes days to match the shares, move the cash and make sure the buyer and seller’s accounts are updated.

Fortunately, we are on the cusp of an evolution in capital markets. We are still in the early days of the financial sector’s adoption of blockchain technology and the digitalization of securities, but they will fundamentally change the way capital markets function. Within five years I expect the average individual investor will have access to assets currently reserved just for the ultra-wealthy or connected, such as private limited partnerships, hedge funds, pre-IPO securities and many others.