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Nasdaq claims first blockchain-based securities issuance

New York’s Nasdaq stock market used blockchain ledger technology to complete and record a private securities transaction, in what it said was the first of its kind using blockchain technology.05 Jan 2016

Chain.com, itself a blockchain developer, used Nasdaq's own Linq blockchain system to document a share issuance to a private investor, Nasdaq said.

Best known for being the technology that underpins trading involving the digital currency bitcoin, blockchain is best described as a public ledger solution with storage capacity that is secured by cryptography and a system of algorithmic problem-solving.

By using Linq, Chain.com was able to digitally represent the ownership record of the shares, while "significantly reducing settlement time and eliminating the need for paper stock certificates", Nasdaq said. It also allowed the issuer and investor to complete and execute share subscription documents online.

Blockchain also promises to speed up trade settlements for transactions in public markets from three days to as little as ten minutes, reducing settlement risk exposure by as much as 99%, Nasdaq said. It would allow users to significantly lower the risk and administration involved in what is "largely a manual and multi-step process today", the stock exchange said.

Bob Greifeld, Nasdaq chief executive said: "We believe this successful transaction marks a major advance in the global financial sector and represents a seminal moment in the application of blockchain technology. Through this initial application of blockchain technology, we begin a process that could revolutionise the core of capital markets infrastructure systems. The implications for settlement and outdated administrative functions are profound."

Adam Ludwin, chief executive of Chain.com said: "We couldn’t be happier with the results of the transaction. It was seamless and met our objective of drastically reduced manual ownership transfer."

Daniel Marovitz, European president and global head of products at payments network company Earthport said last month that blockchain technology has the potential to disrupt the traditional model of financial trading.

Marovitz told Out-Law.com that there is a "big technical revolution" taking place in the financial services sector around blockchain and predicted that "real use cases" will come to the fore in 2016.

Marovitz identified "technical fear" as well as regulatory compliance issues as a "major blocker" to the adoption of blockchain in financial services.