On Tuesday, Adena Friedman, president and CEO of Nasdaq talked about Nasdaq's involvement with blockchain technology and cryptocurrencies at the Bloomberg Invest Summit in New York. Here, we take at look at the key takeaways from the discussion.
- Friedman calls blockchain a "fascinating technology."
- She says it "could be quite disruptive over the long term", but that it is "harder to implement because it requires an entire network to implement it simultaneously."
- However, she believes that "over time it could be a really interesting force in our business."
- Nasdaq has been working on a few case studies with some of its clients.
- One example she mentioned is that Nasdaq is developing a proof of concept in the Nordics for fund administration. Here, she is referring to the blockchain project (announced in September 2017) it is working on jointly with the Swedish financial group SEB, the aim of which is to "test a developed prototype for a mutual fund trading platform based on blockchain technology."
- Another blockchain project Nasdaq is working on is in South Africa for proxy voting. Here, she is referring to a project announced in November 2017 for building a blockchain solution that will hopefully bring electronic voting to the South African capital markets. The client, in this case, is Strate, South Africa's Central Securities Depository (CSD). This solution, which is based on the successful proof of concept Nasdaq developed using blockchain technology to streamline proxy voting for companies listed on Estonia's Tallinn Stock Exchange, will allow Strate to "give shareholders an easy, user-friendly and secure tool for voting remotely."
- The third blockchain project she mentioned was "in Switzerland for OTC securities settlement." This is the project Nasdaq announced in August 2017. It involves a collaboration with technology partner Chain to deliver distributed ledger technology to the SIX Swiss Exchange for SIX's OTC structured products.
- Nasdaq's ten year view is that "this could become much more part of the settlement fabric of the exchanges, of the record keeping fabric of the exchanges... and frankly, much broader applications."
- "We have integrated the blockchain into the Nasdaq financial framework. It's available through every single element of our trade lifecycle, and we can deploy it to any client that is looking for it. So, that is the 10 year view of what we re trying to do."
- Finally, she believes that the technology is "quite scalable" even though "it can't necessarily scale today to support ultra high throughput trading." Although she understands that there are things you can to make the technology work in that scenario, she thinks it is better suited to use cases where you have massive inefficiencies because there is paper instead of automation and you have poor record-keeping and "everything is in a drawer somewhere" (like private securities), or where you have "really long settlement cycles."
- Nasdaq is taking a research-oriented approach to where/when it wants to be involved in cryptocurrencies.
- "I do believe that the construct of a cryptocurrency is something that is starting to become a construct that we can understand... that could become... part of the financial element of the internet."
- "It is at this point, though, very much a speculative asset class... that does not necessarily have a foundational purpose in terms of international commerce... If you think about what the whole construct of it is, it is meant to provide a much more seamless way for commerce to occur globally... As the construct of cryptocurrencies continues to mature -- we don't know which cryptocurrency is going to be the one that really creates that opportunity -- I do believe that over time, we are going to find that there is real utility.""
- "In terms of Nasdaq's participation, though, it is a completely unregulated space today. It is at the height of a hype cycle, and there's just a lot of different players out there."
- "What we are seeing, which I think is quite encouraging, is that a lot of exchanges are trying to become more self-regulated... so [that] they have fair market rules, they have a great technology, they have good surveillance over their activity, and that's the first thing we've started to do. We are the technology provider to a few of the crypto exchanges, and we continue to see an opportunity for us to provide our surveillance technology and our market technology to those exchanges."
- With regards to the partnership with the Winklevoss Twins' Gemini exchange, she says that they want to make sure that have a robust surveillance program so they can get rid of any potential market manipulation, and Nasdaq is providing Gemini with that technology. She says that Nasdaq also provides a clearing and trading technology to one crypto exchange that she doesn't want to name.
- As far as the futures market is concerned, Nasdaq has been investigating cryptocurrency futures and having dialog with its clients, but doesn't believe that it needs to be a first mover in this area. It wants to be sure that it can offer a future instrument such that "you can rely on the price formation and the availability of pricing of the underlying exchanges." It wants to wait for the market to become more regulated, more mainstream, before it decides what it's role should be.
Video of the full interview available on the Bloomberg website.