Blockchain and Smart Contracting for the Shareholder Community

Abstract

Current shareholder engagement systems face large classical inefficiencies. First, due to the large chains of intermediaries in the current securities models, transaction costs are high and shareholder votes and other information are not always correctly transmitted between shareholders and issuers. Recent cases including DNick Holding and T. Rowe Price show the ‘absurdness’ of the current systems. The Shareholder Rights Directive II addresses these problems and the Implementing Regulation already hints at modern technologies to increase the transparency and verifiability of shareholder engagement. Next, the current shareholder engagement system enables different opportunities for different types of shareholders, creating inequalities and hindering shareholder democracy. The solution to these substantial problems lies in a state-of-the-art technology: in this contribution we argue that blockchain technology can solve these current inefficiencies that shareholders and companies face. Using a permissioned blockchain, information can be stored in a verifiable and immutable way, with a consensus mechanism tailored to its purpose. The large amount of initiatives and prototypes of blockchain proxy voting and trading, including the legislative initiatives that were initiated in the past 2 years, show the merits of using this state-of-the-art technology. The Europe Union should incorporate this technology in its legislation, like the CSD regulation, for remaining technology-proof in this globalized market.