A subsidiary of the London Stock Exchange has developed a blockchain solution to help SMEs digitize capital structure and securities ownership.
Keeping the capital structure of an unlisted business on a blockchain system is intended to simplify the issuance of shares, making it easier for SMEs to access capital and bolstering the confidence of potential investors.
The stock exchange blockchain system was developed by Borsa Italiana, a subsidiary of the London Stock Exchange. The platform was built using IBM Blockchain using Hyperledger Fabric 1.0.
The platform is currently being tested by a sample of Borsa Italiana clients and is expected to be rolled out to European SMEs in the future. It has been designed to replace the paper trading certificates currently in use by unlisted SMEs and, in doing so, convert traditional assets into blockchain assets, and traditional workflows into smart contracts.
Converting paper records, which can be difficult to verify and easy to dispute, into a blockchain system where records are traceable, viewable by all parties, and can only be changed if parties agree, can help privately held SMEs to create a standardized and verifiable ownership system.
The Borsa Italiana platform marks the first commercial foray into blockchain technology since the London Stock Exchange joined the Linux Foundation’s Hyperledger Group in 2015.
David Harris, head of commercial technology innovation for the London Stock Exchange Group, said that replacing spreadsheets and paper records of ownership with blockchain records can benefit an SME in a number of ways. Firstly, it can provide certainty regarding the ownership structure of an enterprise, ‘which adds to the transparency and certainty of what future investors in the company will be walking into.’
Additionally, the process of raising funds itself could be simplified by the adoption of blockchain. Harris noted, ‘As you build out this ecosystem, it does not take a giant leap to where future shareholders, future capital, future debt can be raised. It’s a technology that once it’s widely adopted – and it has a long way to go – is a disruptive innovation to its core, which is very exciting.’