The Economics of Distributed Ledger Technology for Securities Settlement

Abstract

We apply economic principles to understand how distributed ledger technology (DLT) might impact the innovation process and eventual market structure in the security settlement industry. Our main conclusions are that: i) Although DLT has the potential to significantly reduce costs in securities settlement, implementation is challenging, ii) technological innovation in the post-trade industry is more likely to succeed with some degree of coordination, which could be facilitated by the relevant authorities, and iii) DLT-based securities settlement is likely to be concentrated among few providers which, absent any regulation, could result in inefficient monopoly pricing or efficient price discrimination with service providers capturing much of the market surplus.