Blockchain Technology and Institutional Finance

With interest in blockchain technology gripping the institutional financial sector today, there is a great deal of confusion about the true nature of the technology, and specifically how it is different from what has come before. The promise to dramatically improve financial infrastructure is well established, but it’s often not clear why the benefits associated with blockchain technology cannot be had with traditional technology.

Blockchain Crosses the Delaware

This blog post was published by MarketsMedia on July 31, 2017 and is available here.

July 21 was a momentous day not just for the world of blockchain, but also for the world of corporate finance. The Delaware “blockchain amendments,” which Symbiont and its legal team assisted in crafting, were signed into law by Governor Carney to recognize blockchain as an acceptable form of corporate recordkeeping beginning August 1. The full benefit of the law takes effect when the Delaware Division of Corporations announces completion of its integration with Symbiont’s blockchain, thereby enabling end-to-end automation of corporate securities administration–in digital form–from inception until maturity.

That Delaware is the first state to recognize blockchain for corporate finance is no coincidence. Delaware boasts more registered corporations than residents, and the First State prides itself on being the corporate registry of choice in corporate finance. Recognizing the promise of blockchain to improve the accuracy of corporate and securities industry recordkeeping, Delaware instituted the Delaware Blockchain Initiative in early 2016.

Now that the legislative process is complete and the bill has become law, Delaware corporations will have the ability to issue shares and manage ownership records using blockchain technology as of August 1. This applies to both public and private entities.

So what does this mean for companies registered in Delaware? First, cost savings should be substantial, and this is true for securities issuers and investors alike. So-called “back office” functions can now be straight-through processed during the entire lifecycle of a security, assuming the security is recorded on the Delaware Division of Corporation’s blockchain instead of using non-blockchain methods such as pieces of paper.

Second, blockchain also provides for greater accuracy of ownership records. Enter Symbiont “Smart Securities®,” fully digitized ownership records continuously maintained and updated via a blockchain. This benefit is especially useful at a time when secondary markets for corporate securities are remarkably complex and fragmented since nearly all publicly traded securities are owned indirectly in “street name” rather than directly by owners. As a consequence, blockchain can prevent situations such as that of Dole Food from February of this year, in which 36.7 million shares were outstanding but investors presented brokerage statements to prove they owned 49.2 million shares.

Another area where distributed ledger technology holds particular promise is in the automation of administrative tasks like filing, documentation, reporting and other communications between issuers, regulators and investors. As routine as these procedures are, they can be time-consuming and vulnerable to human error. Mistakes can pose costly disruptions to the registration and/or capital raising process. Blockchain makes such tasks more manageable in a number of ways. Delaware’s Division of Corporations, for example, is working with Symbiont on an integrated blockchain to automate the annual report and franchise tax filing processes.

Delaware’s historic blockchain legislation may have gone unnoticed by some, but it opens the door to revolutionize the way company shares are created, administered and exchanged.

Why Compliance and Risk Managers Should Embrace Blockchain

This article appeared in the July/August issue of Practical Compliance and Risk Management, a journal published by Wolters Kluwer. It is printed here with permission.

New technology exists that provides a shared, immutable record of who owns which asset, and exactly when they bought or sold it. It provides a perfect audit trail. It can automate business processes that today are duplicated by many parties, and are slow, manual and error prone. It can enable real-time, desktop monitoring by both external regulators and internal compliance and risk management professionals alike. Distributed Ledger or “blockchain” technology is capable of all of this and more.

This article first explains what blockchain technology is, as well as related concepts such as distributed ledgers and smart contracts. It then addresses six common questions about blockchain technology and how it can help the financial services sector. Lastly, it discusses blockchain uses for solving real-world problems and the promise of blockchain for more efficient and effective regulation.

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