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Shanghai Stock Exchange Looks to DLT to Further Regulation

Shanghai Stock Exchange Looks to DLT to Further Regulation

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The Shanghai Stock Exchange (SSE) published a research paper on Tuesday, which analyzed the use of DLT in various stages of a security transaction, writes Coindesk.

The SSE is one of the two stock exchanges operating independently in the People’s Republic of China and is the world’s 3rd largest stock market by market capitalization. The other is the Shenzhen Stock Exchange.

The newly-released paper examined blockchain’s workability in security transactions, such as pre-trading customer registration, securities issuance and trading, and post-trading settlement.

The paper highlighted areas where DLT operating in the country’s financial system was successfully adding value. It praised its successes in replacing the T+1 model, under which a transaction can only be settled one business day after an order is executed.

The SSE research paper referred to former research conducted by stock exchanges regarding DLT operating in other financial markets including Australia and Hong Kong and suggested that two areas would be particularly beneficial in China. It stated:

“A general worldwide consensus is that DLT will be a new revolution for the financial industry. The first application use cases will be over-the-counter securities issuance and trading, as well as order book post-trading settlement.”

The paper went on to point out that any potential integration at the SSE would be subject to further regulation given that it conflicts with current regulatory systems, particularly as the use of DLT would eliminate the SSE system of using a third-party intermediary as custodian and for settling post-trading transactions.

This would require establishing a new legal framework issued by regulators and central government agencies. The SSE’s findings clarified this need for further laws to govern the development of DLT in its sector stating:

“Regulation should adapt to the evolving technology. We suggest regulators treat the topic of DLT as a crucial study area moving forward… in order to develop a solid regulatory framework for embracing the financial innovation.”


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