Researchers for the UK's central bank have argued in a new paper that, if left unregulated, securities settlement services built on distributed ledger tech (DLT) could turn into monopolies.
In a new research paper, entitled "The economics of distributed ledger technology for securities settlement", Bank of England staffers Evangelos Benos, Rodney Garratt and Pedro Gurrola-Perez posits that such an outcome is a possibility, even if the tech itself brings positive changes to the overall structure of the securities settlement sector.
The authors of the paper reason that, as with the current settlement industries, DLT-based services have the potential to become "concentrated among [a] few providers]". Under this scenario, market participants could become more susceptible to price discrimination or inefficient pricing. Service providers, the authors argue, could wind up "capturing much of the market surplus" simply because the industry itself is more naturally susceptible to monopolistic structures.
That said, the research paper does strike a cautiously optimistic tone, positing that the tech could rewrite how the settlement process works for those involved in its day-to-date operation.
The authors wrote:
"...DLT has the potential to improve efficiency and reduce costs in securities settlement, but the technology is still evolving and it is uncertain at this point what form, if any, a DLT-based solution for securities settlement will ultimately take..."
They go on to state that distributed ledgers could "potentially allow for a complete disintermediation of the whole post-trade process, from security issuance to settlement, enabling a pure P2P transaction structure."
Indeed, the Bank of England is one of the most proactive central banks on distributed ledger and blockchain technology, and has previously said that it will build the next version of its official settlement system to be compatible with distributed ledger tech.
Notably, the bank's governor, Mark Carney, said in January that the technology could "reshape" the banking industry.
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