Market Structure Partners often receives requests to talk to organisations about the future of markets. We believe that change nearly always begins at the margin, usually driven by technology, lowering barriers to entry and creating new opportunities for a small subset of firms to drive industry transformation. However, what begins as a marginal activity ultimately moves mainstream, often accelerated by regulatory change. Here are some examples of marginal activities that signal a permanent transformation for capital markets but will need time to mature and help from regulators to reach their full potential.


blockchain-iconBlockchain, or distributed ledger technology, is a database that records peer to peer transactions in a transparent, decentralised digital ledger. Typically transactions between a buyer and seller involve third party intermediaries. In financial markets this includes banks, exchanges, central clearing counterparties (CCPs) and central securities depositories (CSDs). As transactional methods move from physical to digital, the potential exists to ultimately remove third parties from the system and allow people or firms to transact directly with each other.

Transactions are digitally signed and secured through cryptographic key generation, in what is called a ‘blockchain’. The legitimacy of transactions, and therefore their acceptance onto the ledger, is verified through other peers, all of whom have access to, and copies of the ledger. This therefore removes the need for centralised third party processing which typically manages the exchange of funds or shares on a single ledger, reducing the post-trade cost burden significantly. As copies of the ledger are distributed across the network, it also reduces the risk of fraud, as every copy would have to be accessed simultaneously to hack it successfully.

Blockchain technologies are attracting significant investment from financial institutions:

  • Setl is a newly created organisation working on payments and settlement solutions with banks in the UK.
  • Digital Asset Holdings is working with both incumbent exchanges and clearing and settlement entities. ASX and the DTCC are both working with it to develop distributed ledger solutions in clearing and settlement.
  • NASDAQ is using new blockchain ledger technology to successfully complete and record private securities transactions.

However, blockchain has been identified for uses far beyond payments and clearing and settlement application; for example processing corporate actions, diamond tracking to counter fraudulent activity and energy procurement. There will be more real world cases to come in the next few years and with the technology’s resilience and reliability being proven, we believe that significant upheaval to the way in which the financial markets are structured, operated and regulated is to come in the not too distant future.


bitcoin-iconCryptocurrencies have been enabled by blockchain technology. They are new currencies (not backed by any government) with a decentralised payment system. Not all use cryptography, but many, such as Bitcoin do. Founded in 2009, Bitcoin is the most well known of these currencies but there are other examples of similar cryptocurrencies:

  • Ripple is both a digital currency and an open payment network and enables banks to send real-time international payments across networks.
  • Litecoin is a peer-to-peer Internet currency that enables instant, near-zero cost payments to anyone in the world. It is an open source, global payment network that is fully decentralized without any central authorities.

Market structure will inevitably be impacted by these digital currencies primarily due to their unique global character and existence outside of typical government regulation. No government has control over digital currencies, and if they continue to grow in use and popularity, it will have real consequences for how governments control their economies and regulate the markets.

Currently there are more risks identified with the use of cryptocurrencies than with the Blockchain technology that underpins it, so there is still work to do to make it a truly viable alternative to traditional currency. However, with the growing trust and acceptance in digital operations, we believe that digital currencies will have a significant impact on the future of our financial markets.


crowdfunding-iconAs large investors have expanded their investment strategies across borders and stock exchanges have become for profit, focusing on blue chip stocks that drive trading volumes, smaller companies have found it harder to compete for attention and raise capital in a traditional manner.

Changing technology now allows online peer-to-peer methods of raising capital and the use of crowdfunding as a form of alternative finance is growing. It typically involves a large number of people contributing smaller amounts to contribute to a single target, as opposed to the more conventional method of applying to one or just a few sources, such as banks or funds, for large stakes in the sum required. Similar in ethos to community fundraising for a charitable cause, crowdfunding takes this methodology into business models, potentially standing to benefit from diversified sources of investment.

Crowdfunding has already grown in popularity, and small businesses in developing countries have benefited from this mix of charitable and business approaches. Returns can be given back to investors in three main ways: 1) products, special editions, goods or tickets for example; 2) interest payments on the debt; and 3) gaining equity in the unlisted companies or projects. The latter is the hardest one to administer.

Here are some examples of crowdfunding organisations:

The growth of this sphere will have increasing impact as the European Commission is already aware, having published a report on the EU’s crowdfunding sector in May 2016 as part of the Capital Markets Union’s work. It is an area that may require future regulation at national and European level.

Sourced from European Parliament and European websites, financial and national newspapers and market practitioners.

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