
Goldman Sachs Files Patent for Securities Settlement Using Cryptocurrencies - nns
https://bitcoinmagazine.com/articles/goldman-sachs-files-patent-application-for-securities-settlement-using-cryptocurrencies-1449000967
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chollida1
I've done a complete 180 on this from when I first heard about block chain and
settlement until now.

I originally saw the block-chain used for settlement as a form of "blub", we
already have a settlement mechanism that just sort of works, why do we need a
new form of trade settlement.

There are alot of what's known as "back office" functions that still work via
email and phone call that the block-chain can help automate. To fully
appreciate what they are trying to solve you need to understand that while the
process of trading has been sped up by orders of magnitude over the years, the
process of settlement is still very arcane.

Things like obtaining borrow for shares you want to short often still require
picking up a phone. This leads to hedge funds executing their short first and
then finding borrow for the short before they have to settle the trade. Since
trades settle 3 days after the trade was executed this is normally a safe
proposition.

Settlement, as mentioned, also takes 3 days for equities. Each fund that
trades has their own "banker" called a prime broker. When hedge fund A trades
100 shares of MFST with hedge fund B. Those funds report the trade to their
own prime brokers(pb). Then the PB's talk to each other to confirm the trade.
They then have 3 days to transfer the shares and cash to each other and
deposit them into the accounts of the hedge funds who traded.

Lots of things can go wrong in this, and it means human interaction is
required to sort this out, which takes even more time. Also this accounting of
trades happens at the end of the day in batch form, which means even things
like people wanting to get home can delay settlement, you'd think I'm joking
but....

If all trade able assets where secularized on a block-chain then settlement
could happen almost instantaneously, limited by the number of transactions per
block and how fast blocks are "mined".

