blockchin

Tl;DR There can be no single point of failure in the delivery of securities nor the payment stage. Identical information is relayed to all market participants at all times, consolidated on a single global ledger

(although the option to jump between private 'permissioned' ledgers is possible, and being researched by certain institutions as more suitable for their needs)

In a simplified way you can use the Bitcoin scripting system to make binding bids and offers without needing a central exchange. And you can achieve person to person atomic swaps of currency for securities – delivery versus payment – without needing a custodian.

Let's assume MSFT shares are represented as specially encoded satoshis.

Below you can find is examples of (fictional) MSFT shares [1] [2] being represented on the blockchain in that way. I'll use an example of CounterParty, which is a meta-layer on the blockchain. The Counterparty protocol acts as an escrow service, and thereby eliminates counterparty risk from the exchange of assets.

[1] http://blockscan.com/assetInfo/MSFT [2] https://coindaddy.io/search?network=xcp&q=MSFT

Now that MSFT asset is stored on the bitcoin blockchain. Actually it is encoded as an OP_RETURN script in the transaction, an breakdown of such an asset you can see here:

  434e545250525459|00000000|000000000004fadf000000174876e800000000000000000000000000
       |             |          |
       |             |          └── All of this is the operation data (maximum 28 bytes)
       |             └──────────────── This is the transaction type identifier (4 bytes)
       └───────────────────────────────── The string CNTRPRTY in hexadecimal (8 bytes)

  000000000004fadf|000000174876e800
       |               |
       |               └───── quantity (8 bytes)
       └────────────────── asset name (8 bytes)

http://counterparty.io/docs/counterparty_features/#overview

http://counterparty.io/docs/counterparty_features/#protocol-...

Reports of Wall Street adopting it for settlement purposes seem slightly optimistic

Here is just one example: (and I'm aware of many more pilot programs)

http://www.nasdaq.com/press-release/nasdaq-launches-enterpri...

the 1MB blocksize limits are rapidly being tested. However with some of the recent proposals, blocksize would double every 2 years, so something like this:

  2016 8MB 0.1Mb/s 26Tx/s
  2018 16MB 0.2Mb/s 53Tx/s
  2020 32MB 0.4Mb/s 106Tx/s
  2022 64MB 0.9Mb/s 213Tx/s
  2024 128MB 1.7Mb/s 426Tx/s

There's a lot of space to grow and a lot of time to pass in which numerous innovations could come to existance, sidechains, lightning networks are a few 'transaction offloading schemes we've seen recently.

In addition, the blockchain proper only needs to be used as a periodic settlement platform, where tx's are farmed together into blocks. and not as a trading engine. (non PoW-based permissioned ledgers are a better fit for that)

Any asset can be created on top of the bitcoin with meta-layers such as CounterParty [1] (which is what Symbiont is basing their solution off of) Colored coins [2] or a hybrid approach [3] recently demoed by Deloitte

[1] http://counterparty.io/ [2] http://coloredcoins.org/ [3] http://rubixbydeloitte.com/

(These platforms have received recent backing by NYSE and NASDAQ, respectively)

Assets created through Colored coins must use a gateway in a quasi-centralized fashion, however Assets created via counterparty can be traded p2p without a middleman, as they can be natively escrowed by a protocol which enforces atomic swaps and a fair deterministic order matching engine.

DTCC's status quo is T+3(days), if there are trades that can be settled on a blockchain, that can be reduced to T+1(hr) or less.

IMO Bitcoin is a horribly inefficient trading platform, (aside from the 'advantage' of HFT bots being on equal footing as retail investors) but an ideal settlement/netting/clearing layer. As a minimum there are huge transparency gains to be gleaned.

The introduction of Smart contracts potentially opens up the field for a whole new paradigm of smart securities, as well. There are a whole host of established entities researching on blockchain securitization and/or smart contracts at the moment, a subset of them are below:

  CBW Bank
  ANZ
  Westpac
  Commonwealth Bank of Australia
  BNY MELLON
  LHV Bank
  Barclays
  UBS
  Goldman Sachs
  ABN Amro
  ING
  RoboBank
  SWIFT
  Santander
  Standard chartered
  DBS
  USAA
  BBVA
  KPMG
  InfoSys Finacle
  CitiBank
  DTCC
  Deutsche Borse
  Markit
  EuroCCP
  CME