Multilateral Transparency for Securities Markets through DLT

42 Pages Posted: 28 Mar 2019 Last revised: 25 Oct 2019

See all articles by David C. Donald

David C. Donald

Chinese University of Hong Kong - Faculty of Law

Mahdi H. Miraz

Xiamen University Malaysia Campus; Wrexham Glyndŵr University; The Chinese University of Hong Kong (CUHK)

Date Written: July 26, 2019


For decades, changing technology and policy choices have worked to fragment securities markets, rendering them so dark that neither ownership nor real-time price of securities are generally visible to all parties multilaterally. The policies behind these developments are found in the US National Market System and the EU Market in Financial Instruments Directive, together with universal adoption of the indirect holding system, and have painted Western securities markets into a corner from which escape to full transparency has seemed either impossible or prohibitively expensive. Although the reader has a right to skepticism given the exaggerated promises surrounding blockchain in recent years, we demonstrate in this paper that distributed ledger technology (DLT) contains the potential to lead fragmented securities markets back to multilateral transparency.

Leading markets generally lack transparency in two ways that derive from their basic structure: multiple platforms on which trades in the same security are matched have separate bid/ask queues and are not consolidated in real time (fragmented pricing), and high-speed transfers of securities are enabled by placing ownership of the securities in financial institutions, preventing transparent ownership (depository or street name ownership). The distributed nature of DLT allows multiple copies of the same pricing queue to be held simultaneously by a large number of order-matching platforms, curing the problem of fragmented pricing. This same distributed nature of DLT would allow the issuers of securities to be nodes in a DLT network, returning control over securities ownership to those issuers and thus restoring transparent ownership through direct holding with the issuer.

A serious objection to DLT is that its latency is very high – with a Bitcoin blockchain transaction taking up to 10 minutes. To cure this, we first propose a private network without cumbersome proof-of-work cryptography and, second, introduce into our model the quickly evolving technology of “lightning networks”, which are advanced two-layer off-chain networks conducting high-speed transacting with only periodic memorialization in the permanent DLT network. This paper demonstrates against the background of existing securities trading and settlement that a DLT network could bring multilateral transparency and thus represent the next step in evolution for markets in their current configuration.

Keywords: market structure, securities markets, distributed ledger technology, blockchain, indirect holding system

JEL Classification: G10, K22

Suggested Citation

Donald, David C. and Miraz, Mahdi H., Multilateral Transparency for Securities Markets through DLT (July 26, 2019). The Chinese University of Hong Kong Faculty of Law Research Paper No. 2019 - 05, Available at SSRN:

David C. Donald (Contact Author)

Chinese University of Hong Kong - Faculty of Law ( email )

Faculty of Law
6/F, Lee Shau Kee Building
Shatin, New Territories
Hong Kong
852 3943 1042 (Phone)
852 2696 1040 (Fax)


Mahdi H. Miraz

Xiamen University Malaysia Campus ( email )


Wrexham Glyndŵr University ( email )

Mold Rd.
Wrexham, LL11 2AW
United Kingdom


The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong


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