Nasdaq OMX Group, Inc is testing the Blockchain as a new technology platform for the trading of shares, assets, and securities. If the testing is successful, Nasdaq intends to use the technology to spur financial innovation in the stock market.
Nasdaq plans to test the technology in the fledgling Nasdaq Private Market, a marketplace for pre-IPO trading among private companies. Innovation is needed in this niche sector because companies trade shares on paper and use teams of lawyers to verify transactions by hand. 75 companies are signed up on this platform.
"Utilizing the Blockchain is a natural digital evolution for managing physical securities." said Nasdaq Chief Executive Robert Greifeld. He said Bitcoin holds the potential to "benefit not only our clients, but the broader global capital markets."
The Blockchain is the core component of Bitcoin that has multiple uses beyond a currency and a payment platform. The Blockchain's ability to settle transactions without the need of a third party reduces intermediary costs and exposes platforms to a larger market. Assets, shares, and securities can be represented as digital tokens on the Blockchain and traded directly between interested parties.
According to a tweet by the author of the press release, Nasdaq is experimenting with a colored coin implementation for the digitization of the shares. Colored Coins is one of several "Bitcoin 2.0" projects that add functionality to the native Bitcoin Blockchain. With Colored Coins, users can have small amounts of bitcoin "colored" to represent asset tokens of real world or digital value. Counterparty and the OMNI Layer are other projects that had enhanced feature sets to the Bitcoin Blockchain.
Other Wall Street moves in the Bitcoin space include the NYSE investment in Coinbase, Goldman Sach's investment in Circle, and JP Morgan executive and creator of the credit default swap Blythe Masters joining as CEO of Digital Asset Holdings, which intends to innovate securities and assets trading using Blockchain technology.
Securities trading is currently done in a "T+3" settlement window, where transactions are settled three days following the execution of the trade. With the Blockchain as a platform that handles the trustless disintermediation of counterparty risk in settlement, the trading of securities and shares could be reduced to a "T+0" structure. This innovation would enable real time trading, freeing up billions of dollars that normally wait during the settlement period.