Morgan Stanley Global Finance and Payment Report: Has the chain chain potential released?

For twelve months, existing financial institutions have taken the lead in potential costs and capital gains. Proof of concept surge. We expect a step-by-step change to a smaller, interoperable block chain that is most susceptible to the development of its block chain.n
The report presents five case studies and assesses how much progress has been made in our 10-barrier framework: New York Mellon Bank’s government bond settlement, the Australian Stock Exchange’s “Industrial Scale” concept validation, Singapore Umin Island Project, Raven’s Cross-border Payment Solution and Interactive Ledger Agreement, UBS Group’s Open Bench Coil Test.n
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Four main findings:n
nThe block chain still does not have a real test: early signs suggest that this is a promising technology, but many major issues have not yet been answered and have not yet been tested in a complex, rapidly changing business environment.n
nnBlock chains can be inserted into existing infrastructure to increase flexibility and security: In view of the scalability of block-chain technology and the complexity of existing financial infrastructures, we believe that the best recent use of block-chain technology Is the case of integrating block chains with existing infrastructure. Based on the security and immutability of block chains, block-chain technology provides a solution for financial intermediaries that rely on their reputation for security and resilience.n
nnThe key is to make the block chain social: laws, regulations and business case issues still need to be answered. Different jurisdictions may have different attitudes.n
nnThere are still no killer applications to start the application block chain: many proof of concept are carried out on a global scale, but there are no killer applications that we think can be used to start the block chain application.n
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Two investment conclusions:n
Block chain is a tool to improve efficiency. With the maturity of technology, funds and securities companies will have the opportunity to further reduce the number of employees and operating costs, because the block chain technology is increasingly widely used in clearing and settlement transactions.n
Current financial companies are profitable: As we stated in our May FinancialTech (FinTech) report, we expect the current financial firms to dominate a large number of given acquisitions and funds, which are needed for the chain of chains to be fully of. In our view, this means that it takes longer to achieve scale, which is very beneficial for the current financial company.n
nThe final conclusion: the rapid appreciation of encrypted digital currency makes people have to call our bank and technical team asked. Possible explanations include investors looking for unconfirmed risky assets and seeking technical staff to gain more security. The government is required to further accelerate its development, where prices are regulated.n
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executive Summary n
A year ago, investors and businesses began to benefit from the chain chain; please refer to our Global Financial / FinTech report: Block Chain Banks: Destructive Threats or Tools? (April 20, 2016) and the global exchange: the block chain — is the Australian Stock Exchange to create a brave new world? (June 2, 2016). At that time, there was little evidence of how the new technology would develop in the context of the financial services industry and could even be feasible in small-scale situations. The block chain is now in the stage of development of the conceptual demonstration phase (see Annex 3). In this report, we have investigated the milestones that have been achieved.n
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Block chain – direction, content and how to use?n
Over the past 12 months, we have further driven our idea of ​​how the business model will be developed using the chain chain (see who will profit, existing financial firms or subversive people). In some cases where the market is small or does not exist in the market, we believe that existing financial institutions will drive business solutions that permit chain chains (if the program is effective) and will reduce costs as a goal or make existing processes more Flexible and safe. Our research shows that, as originally expected, most of the proof of concept is focused on the business and related liquidation of the capital market type (we have discussed several of the initiatives in this report). We also show that block chain technology is being developed on a global scale.n
In order to measure the likelihood of success, or in other ways, we have written five case studies based on existing proof of concept. We interviewed the participants and reviewed the published reports. These can be found on page 11 to page 27. Our main findings are a few major impediments to the block chain applications we see, see Annex 1.n
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Investment conclusionn
It is too early to arrive at a specific investment conclusion; however, it is making progress, and we can see the initial progress of the shared infrastructure in the next 12-24 months. Our view is that current financial institutions are often more likely to benefit than new entrants, most likely to see cost-effectiveness or may further increase capital efficiency. In some cases, income income is feasible, but we have initial uncertainty about this. We believe that the sooner the company involved in the chain chain is likely to profit, including the Australian Stock Exchange, UBS, New York Mellon Bank, Northern Trust, Dobu Bank, and JPMorgan Chase). Finally, we note that there are competing validations in the study of the same use cases, such as competitive verification in the Umm Island project in Singapore and the UBS case, or in trade finance coordination. Considering the need for interoperability and adapting to the existing system, it is interesting to see if these different visions are to be kept in the future, or whether we can see a win-win situation.n
Figure 1:n

Summary of case studiesn
Source: Morgan Stanley Researchn
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Who will be a lender, an existing financial company or a subversive subversive?n
Figure 2:n

The block chain can be fully utilized for what is needed for a large number of acquisitions, which means that it will take longer to achieve a wide range of applications and will benefit the current financial company.n
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Source: Morgan Stanley Researchn
In our financial technology Fintech, a highly challenging report on wealth, we are aware of some of the factors that affect the progress of the improvement and the possibility of changing the success of a company by contrasting with the current company’s hindrance or cooperation. We have evaluated in some cases, through a complete financial technology of subversion or innovation in comparison, to determine which is more suitable for partners and to promote the current company’s business improvement. While there is a big difference in environment, constraints and competition, we have refined the various environmental factors that we consider to be the most important and incorporated into the framework of our challenges. We hope that this will help the industry, investors and companies’ indices through specific Of the financial technology and the current situation of the company combined to maximize the impact and potential. Through our framework to promote the innovation of the chain chain, we believe that the current company as a subversive opponent may be best suited to use this technology in a scalable way to achieve revenue (see Annex 2).n
Figure 3:n

Block line implementation of the timelinen
Source: Morgan Stanley Researchn
2014-16: Assess the value of block chains in financial assetsn
Banks and other financial infrastructure intermediaries (FII), including central trusteeships, exchanges, and technology providers, licensed to assess the potential efficiency, shared, and secure distributed ledger.n
Banking and financial infrastructure intermediaries to form an industry group to discuss opportunities (R3, Linux operating system of the super book base)n
2016-18: Concept Verificationn
Banks and financial infrastructure intermediaries prepare specific assets as case studies for block chainsn
Conceptual validation goal: to assess whether the block chain can scale and reduce costsn
1) Technology is feasible and large scale?n
2) The buyer, the seller, and their third parties (ie lawyers, auditors, regulators) can use very little manpower to verify the transaction and replace the human team.n
3) Can it go beyond the existing technology in terms of performance, cost, speed, scale analysis, etc.?n
Level of concept verification: from the most important to the sub-important assets to dividen
The resources concentrated in the most important assets, the most inefficient processn
Hire a supervisor, a lawyer, an auditorn
2017-20: The emergence of shared infrastructuren
Verified assets far exceed the initial concept validation groupn
Develop interfaces for external usersn
Use the application interfacen
Reduce costs by reducing manpower and increase the interaction of infrastructure costsn
2021-25: Asset Proliferationn
More assets are transferred to the block chainn
Validated validityn
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So farn
The chain of chains, which are behind Bitcoin and other encrypted digital currencies, broke out in the financial and technical background a few years ago. It is very meaningful to have a parallel financial system (independent of existing infrastructure) based on the establishment of a decentralized ledger, making it possible for current companies to have the currency risk of credit card networks, remittance networks and banks.n
Block chain technology in the context of banking and financial institutions, refers to the general distribution of general ledger technology. It is important that banks need a private, licensed network, rather than an open, low-licensing network. Such as a network that supports Bitcoin.n
Several consortia led by high-market share of existing financial companies have been testing the concept of zone chain technology validation, particularly in the area of ​​securities clearing and settlement. Leaders include the Australian Stock Exchange, Nasdaq, New York Mellon Bank, Northern Trust, Dobu Bank, and Morgan are assessing whether the chain chain can provide cheaper and safer services than existing systems.n
The application of distributed ledgers has been expanded and efforts have been made to assess business cases: whether the benefits outweigh the costs and risks of implementation, especially relative to simpler alternatives, such as incremental updates to old infrastructure.n
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The next step?n
For some applications the concept of validation (such as securities clearing and settlement) and slowing down on other aspects of enthusiasm (buying bit currency).n
We expect block chains to be applied in a wave-like manner in the form of distinction between asset classes. Mature conceptual argument for the asset class is:n
n1. Mature traditional processes that are hindered by development and are inefficient are likely to be disintegrated (for example, the management of private equity funds in Northern Trust);n
2. Market share is concentrated in the current company can effectively guide the concept of verification work (ie, New York Mellon US fiscal bond settlement, the Australian Stock Exchange stock settlement);n
3. Non-mobile markets (such as SME Securities Clearing, ASEAN Government Bonds) or currently non-existent markets (for example, in emerging markets via mobile wallet between international asset transfers, nyiax markets through contracts in the United States).n
nIt is likely that existing financial companies will realize the application of certain forms of block chain technology. Taking into account the needs of a large number of collaboration, we expect it may take several years to replace the existing back office function / in the use of the asset category can save a lot of cost.n
There is a potential application that includes a portion of the Network Security Toolkit for the escalating network security risks, such as block-chain technology, which is hard to attack by hackers.n
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Artificial Intelligence and Block Chainsn
In the past few years, AI (Artificial Intelligence) and block chains have become fashionable terms. We can not help but ask whether they really should not be competitors, or whether they can complement each other.n
The core intent of the chain as a concept is to create a record whose accuracy and reliability are irrefutable. But as with other things in life, absolute self-confidence is costly: exponential growth calculations and bandwidth requirements, at least in terms of linear growth in storage requirements, significant security and privacy issues, and all of these costs are preloaded (Creating a free sharing incentive mechanism), with long-term returns making maintenance costs down.n
On the other hand, artificial intelligence can actually calculate the probability of accuracy and reliability in order to improve trust – in the long run, 99.9% and 100% of the reliability of economic differences between it? Better data, more computing power and greater bandwidth, should be able to improve and improve trust. Increasing the probability of calculation can achieve the decline in the cost of Moore’s Law, and the investment is based on an ad hoc basis. Investments and improvements can be done iteratively so that there is a clearer path and time to repay.n
We have seen the probabilistic approach to transaction security and have seen great success in traditional payment networks such as Visa and MasterCard. On the other hand, these payment networks have been able to keep fraud losses at a low level by improving post-trades assessment. Even if the newcomer Square has been able to control the loss of less than 10bps, or even give up the acceptance of credit and debit cards – they will actually reveal the reader, they do not need credit check (for personal), or other person / account verification, is still valid To control the business / consumer fraud. We believe that Moore’s Law and improved data analysis can reduce these losses.n
Therefore, our problem is: artificial intelligence can cooperate with the use of things networking, cloud computing, large data, all the current popular new things to improve the application of the block chain?n
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12 months since the block chain – direction, content and how to use?n
The headlines of the chain chains have been on the rise.n
Although the block chain or distributed accounting technology has been around for many years, it is really becoming more popular in the mainstream, but in the past 12 months, a number of mainstream financial service providers have discussed the feasibility of A series of proof experiments. As shown in Figure 6n
Block chains have been frequently mentioned in the company’s documents since the beginning of 2016.n
Further analysis highlights the advantages of capital market-oriented business interests, the block chain in the company’s documents mentioned that 63% of the group from the capital market concerns. From the regional point of view, North America has mentioned the most, but the block chain has been the attention of the global community.n
Figure 4:n
The block chain has been repeatedly mentioned in major news and corporate documentsn

Source: Alphasense (British Gas Sensor Company), Morgan Stanley Researchn
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