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On January 18, 2017, the United States Financial Industry Regulatory Authority (FINRA) released for comment a report titled Distributed Ledger Technology: Implications of Blockchain for the Securities Industry.

The report provides a helpful overview of distributed ledger technology (DLT) which FINRA describes as involving a distributed database maintained over a network of computers connected on a peer-to-peer basis, such that network participants can share and retain identical, cryptographically secured records in a decentralized manner.

The report sets out examples of DLT applications being explored in the U.S. securities industry by market participants including the following:

  • a system to track the trading and ownership of private company shares,
  • the issuance of a class of digital shares on a proprietary DLT network allowing for the shares to be traded on the platform with same day settlement,
  • a DLT network to facilitate faster clearing and settlement of syndicated loans or repurchase agreements,
  • the issuance and trading of corporate bonds on a distributed ledger network such that the terms of the bond are embedded as code on the digital asset allowing for automated calculation and payment of coupons,
  • a DLT network to manage and monitor credit default swaps,
  • a DLT-based central repository of standardized reference data for various securities products, and
  • a centralized identity management function to manage global customer identities through a single interface with the information to be shared with other participants on the network.

The report reviews the potential impact of the technology, including key implementation and U.S. regulatory considerations for broker-dealers such as governance, operational structure, network security and regulatory considerations, customer data privacy, trade and order reporting requirements, supervision and surveillance, fees and commissions, customer confirmations and account statements and business continuity planning.

FINRA is seeking comments from interested parties by March 31, 2017.