International Business Machines announced Wednesday it is partnering with the Santiago Stock Exchange, Chile’s largest stock exchange, to implement Latin America’s first blockchain stock exchange solution.
“In our understanding, t will be the first to implement securities lending blockchain technology anywhere in the world," IBM Chile General Manager Francisco Thiermann told International Business Times. Thiermann said blockchain will do for secure transactions what the internet did for information.
There is some precedent for blockchain solutions in regional stock exchanges. Bloomberg reported last October that Scotland was looking to launch its own stock exchange, Scotex, based on a blockchain system. According to the Scotex website, the market will launch later this year. South of the equator, The Australian reported the Australian Securities Exchange is already undergoing blockchain trials.
The Korean Stock Exchange, London Stock Exchange, Estonia’s Tallinn Stock Exchange, the Tokyo Stock Exchange and even Nasdaq have all started experimenting with blockchain technologies on some level. Now Chile’s biggest stock exchange plans to actually implement its own blockchain system by the end of 2017.
Santiago’s distributed ledger infrastructure will simplify short-term exchanges. Thiermann estimates securities lending still accounts for less than one percent of the current Chilean market, although it rakes in trillions of dollars for stock exchanges in North America.
“Those stocks will be borrowed by another institution for a short period, let’s say one week,” Thiermann explained. “Afterwards, they return the stock to the original lender. In Chile, this process today is still done manually.”
Chilean partners hope blockchain infrastructure will simplify contracts, payments and all sorts of back-office processes. "We spend two-to-three days after trading signing contracts, adding the assets, and the intermediary needs to create the collateral,” Santiago Stock Exchange Chief Information Officer Andrés Araya told CoinDesk. “All of that will now be put in a block that will be queried by different intermediaries."
Thiermann added the blockchain system will also make the exchanges themselves more secure, protecting against invalid payments and human errors, like lost contracts. “Introducing the blockchain will allow them to do it cheaper, faster, and in a more secure environment,” he said.
If this Santiago Stock Exchange partnership is successful, IBM plans to expand its offerings to other types of transactions in markets across Latin America. Chile is part of a regional stock exchange agreement with Peru, Mexico and Colombia called Mercado Integrado Latinoamericano, the Integrated Latin American Market often referred to as MILA. “The idea is for them to take a leadership position and share the technology with other countries,” Thiermann told IBT.
In the future, blockchain technologies could fundamentally change the way stock markets work. Some experts believe distributed ledger systems like blockchain could decentralize exchanges, permitting direct ownership transfers between investors, increasing transparency and reducing risk. “Right now we are only seeing the tip of the iceberg,” Thiermann said.