Blockchain is one of the most rapidly-growing technologies in financial management systems. Protecting financial data is vital to avoid significant losses.
Therefore, financial security should be a primary focus when new technologies or security requirements arise. The stock exchange management branch of finance focuses on two principles, minimizing risk as well as maximising profit.
Blockchain will help Africa create ideal stock exchanges by combining automation and decentralization.
Blockchain technology is rapidly being adopted by the stock market to facilitate market transactions around the globe. Some areas of the advanced economy are not yet ready to adopt blockchain technology.
This technology is very versatile in tracking securities lending, margin financing and system risk monitoring.
Many industrialized countries with global stock markets are progressively using blockchain’s innate capabilities as the foundation for market transactions, and Africa should not be left out.
Since years, businesses have experimented with different methods to increase the effectiveness of stock exchange transactions.
Exchanges now use artificial intelligence and data analysis to augment human intelligence. This allows brokers to perform risk assessments, obtain market information and streamline market operations.
Blockchain can be used to automate stock trades, making it easier and more convenient to transact stocks online.
How blockchain can be used to improve the African stock market
Blockchain could be used to address issues such as confidence, transparency, interoperability and trust in fragmented market systems. Because of the need to involve intermediaries, operational trading clearing, and regulatory processes, stock market participants like traders, brokers, regulators and stock exchanges must go through a complex system that takes 3 or more days for transactions to be executed.
Blockchain can help stock markets become more efficient by using automation and decentralization. It can help customers save money on commissions and speed up the settlement process.
This system can be used to process transactions, reduce paperwork and facilitate the legal transfer of security owner.
The rules and regulations are written into smart contracts, and each trade-in is required to enter transactions. The blockchain network acts as a regulator for all transactions. Blockchain can greatly reduce the need to have a third-party regulator.
Blockchain can be used to monitor transactions online if it is properly implemented. Blockchain-based exchanges can have features that block, track and report illegal transactions made by any user on the network. They also provide a stable framework to implement security policies and standards.
Transactions on blockchain are faster as trade confirmations are performed using smart contracts by peers and not a middleman.
As there are fewer middlemen in the system, the associated costs such as trade audits and trade verifications decrease.
Blockchain technology can speed up margining and margin fees. Assets deposited as capital can also be valued every day, rather than weekly, which can reduce risk.
Automation can also eliminate redundancies. This leads to lower costs and entry barriers that lead to a larger market base.
People who previously couldn’t engage in the markets owing to cost constraints will be able to do so, enhancing liquidity and investment.