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Global: Goldman Sachs report claims blockchain technology could save the global equities market US$6bn dollars a year

Emily Reid

Emily Reid,

London

Roger Tym

Roger Tym,

London

Andrew McGinty

Andrew McGinty,

Shanghai

16 June 2016

According to a Goldman Sachs report, the use of blockchain technology for clearing and settlement in the cash equities market could save banks US$6bn a year. This saving is largely the product of lower headcounts and back office IT costs.

Although there has been some recent streamlining in the execution of cash equity trades, the post-trade process remains expensive. This process could be cheaper and more efficient through utilising distributed ledger technology to eliminate duplicative confirmation steps, shrink the settlement cycle and cut risk.

The report claims the new technology could lead to savings of up to US$2bn a year in the US alone. Goldman Sachs estimates that around 10% of all trading volume necessitates expensive manual intervention, arguing that the use of blockchain could dramatically decrease this number.

The report also highlights the reduction in headcount in the back/middle office activities (US$900m) and the fewer platforms and systems necessary (US$700m) as factors where blockchain use would result in large savings.

The report generally characterises blockchain as a source of cost savings and efficiency improvement for the capital markets, and not as a new competitive force capable of disrupting the position of incumbents’ profit pools. Whilst clearing houses such as the DTCC and traditional custody models like JPMorgan and Citi could see revenue streams decrease, this will likely be offset by cost savings.

Goldman Sachs also predicts that blockchain technology could lead to global savings of between US$3bn and US$5bn a year in anti-money laundering compliance, by improving transparency and efficiency.

Transparency and efficiency; better data quality will cut the number of falsely identified 'suspicious' transactions.

Emily Reid

Emily Reid,

London

Roger Tym

Roger Tym,

London

Andrew McGinty

Andrew McGinty,

Shanghai

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