TOKYO -- The operator of the Tokyo Stock Exchange will start experimenting with blockchain technology for clearing and other operations as early as March, aiming to lower transaction costs.
The bourse operator's current top-down record-keeping stores trading data in a central server, requiring a good deal of network investment. Blockchain technology creates a public ledger shared among users' computers. When changes are made, each computer's copy of the record is compared, ensuring accuracy.
The technology will first be tested on sample securities in an artificial environment to confirm that clearing and other operations are recorded accurately. A report on this phase is targeted for summer. If all goes well, Japan Exchange Group will consider using the system for private equities and other low-turnover instruments. Current blockchain technology likely lacks the processing power to keep up with brisk trading on listed shares.
At present, most private-equity trades are negotiated by security companies, making pricing and other operations a challenge. A new private-equity market built on a blockchain could help boost liquidity, ultimately lowering transaction costs. Such a shift could also let funds flow more smoothly into up-and-coming companies. The Nasdaq stock exchange began using a blockchain-based shareholder ledger on its private market last year.
Japan Exchange Group looks to include research on financial technology, including that aimed at creating new infrastructure, as a core strategy in its medium-term management plan that starts in fiscal 2016. Amassing expertise in cutting-edge technology is seen giving rise to new operations.