Why the block chain will be a new force in financing


nnnIn the case of a chain-based alternative market, private markets that have been restricted by financing channels are more likely to attract investors from market liquidity, settlement speed, and risk. But the technology itself in the early, regulatory issues and regional economic differences have brought obstacles to the popularity of the platform.n
nnTranslation: Annie_Xun
nFor small and medium enterprises, private equity financing has some shortcomings. Marketing is not in place means that the holder can not clear the community and other places are willing to achieve the capitalization of the company’s investors. And its products are mainly paper form, often limiting the ability of investors to sell shares.n
nBut the block-chain technology behind the encrypted currency, such as Bitcoin, can provide a platform to replace traditional private equity financing in a cheaper and more convenient way.n
nIf you have been concerned about the financial media, you have heard the block chain. This is a shared or “distributed” book technology that runs on a computer network and records point-to-point transactions among participants who are authorized to access the network, independent of centralized third-party network management.n
nBuilding a viable alternative to block-based products and trading market has taken the first step: 2015 Nasdaq subsidiary Linq launched a private company stock market, using private block-chain technology. Last year Overstock.com issued a $ 11 million “digital” preferred stock that traded on a block-based chain as a substitute for Nasdaq-listed common stock. London Stock Exchange Group, one of the world’s largest securities market operators, recently announced a joint venture with IBM to develop an alternative market for block-based chains in Italy.n
nHow does an alternative market based on block chains work? Can private companies go on the market? Like Microsoft, General Electric, Ford or other companies listed on the exchange. But private-sector stocks are only open to qualified investors, and now people who are now involved in traditional private equity financing, they can use the chain-based platform to trade these stocks.n
nThe platform is directly connected to a private company with a lot of capital: any qualified investor who can access the Internet can buy a company stock, no matter where the investor is. This is a big step for business owners who have only been able to finance their friends, family or other formal or informal local relations.n
nFor several reasons, alternative markets based on block chains can also attract investors.n
nnFirst, the market can provide liquidity to investors (as long as investors need, can be more free to sell stocks), so that investors are no longer subject to the traditional private company investors set restrictions.n
nSecond, the settlement time, the time the buyer receives the stock, the seller receives the cash time, can be shortened to a few minutes instead of the open trading stock for three days of settlement time.n
nThird, the chain-based market can reduce the risk of processes and transactions. Reducing the settlement time can reduce the risk of defaulting counterparties while reducing reliance on manual processes and reducing the likelihood of human error in transaction processing.n
nFinally, block-based systems are harder to attack than legacy technology systems because of the large amount of computing power required.n
nnSo why is the alternative market based on the block chain?n
nFirst of all, the technology is still new, brought a lot of legal issues. For example, many state companies do not recognize digitalized securities (although some states are trying to fill the gap). In addition, the traditional securities market has not yet developed a tool to improve the liquidity and price discovery mechanism, such as short selling. Similarly, there is currently no block-based loan approach that can replace private-sector stocks. Perhaps most importantly, the major securities regulators, including the Securities and Exchange Commission, have not yet carefully evaluated the pros and cons of alternative markets based on block chains. So it is unclear how the chain-based market will be regulated.n
nBlock chain development may also encounter institutional resistance. Considering that the deployment of block-based chain-based processes may eliminate or weaken the role of intermediaries and related personnel in securities issuance and trading, including operators who monitor manual settlement and other processes. For example, if the company avoids the intermediary, directly in the alternative market listed private equity, the rich and the investment agency’s intermediary may think of becoming a bystander. Moreover, in the stock trading and settlement through the network to complete, almost real-time, paper processing process, what is the use of people?n
nAt the same time, like many elements of the 21st century American economy, participants who benefit from the development of alternative markets based on block chains are likely to be programmers and developers.n
nThe World Economic Forum estimates that 80% of the global banking institutions will launch a chain-chain project by the end of 2017, media reports show that $ 600 million has been invested in non-bank financial services areas Block chain items, including derivatives trading and proxy voting.n
nThe importance of the securities industry participants to ignore the block chain will be a strategic mistake because it has the potential to reduce billions of dollars in costs.n
nBentley Anderson is a lawyer, Anderson PLC executive, former general counsel of RBC Dain Rauscher and Deephaven Capital Management.n

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