Blockchain and the Future of Securities Exchanges

In this paper, we analyze blockchain technology as an alternative to facilitate securities market transactions. We argue that the ability to lower transaction costs combined with the reduction of intermediaries and improvements in transaction efficiency will promote the implementation of blockchain technology in these markets. We use platform economics to illustrate how blockchain-based securities exchanges can reduce unfair rents that platform operators extract from the investing public under the current regulatory regime, and indicate how the economics of platforms might be used to implement a blockchain solution to enhance the exchange process. We argue that in order to reduce transaction costs and increase the potential for innovation, blockchain platforms should be moved from the supply-side to an intermediary position and operate as a neutral party that straddles both sides of the market. Finally, we find that open routing procedures are likely to positively impact the market and enhance the efficiency of securities market transactions.