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VI The Future of OTC Derivatives Clearing in Europe, 17 Potential Impact of the Distributed Ledger Technology on OTC Derivatives Markets »

Randy Priem
From: Clearing OTC Derivatives in Europe
Edited By: Bas Zebregs, Victor de Seriere, Rezah Stegeman, Patrick Pearson
This chapter highlights the potential impact of the distributed ledger technology (DLT) on over-the-counter (OTC) derivatives markets. The chapter first explains in detail how DLT and/or blockchains work. DLT refers to the novel approach to record and share transactions and/or data across multiple participants in a decentralized way. A blockchain, where data is stored in blocks chained together in a chronological sequence, can then be considered as a particular kind of DLT, albeit the terms ‘blockchain’ and ‘DLT’ are often utilized interchangeably. DLT has received extensive consideration over the past decade from market participants, financial market infrastructures, and regulators. The chapter then documents the current trading life cycle before discussing how DLT could make the existing life cycle more efficient. It will focus not only on the potential advantages of DLT but also on new risks to which this technology might give rise. The chapter ends with regulatory evolutions.