> For the complete documentation index, see [llms.txt](https://adamdavidlong.gitbook.io/lawsnap-guide-to-smart-contracts/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://adamdavidlong.gitbook.io/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/stock-exchanges.md).

# Stock Exchanges

## Executive Summary

* The current process for handling stock trades, i.e. when someone buys or sells shares of stock, is ready for disruption.
* Each time "Brian the Buyer" buys a share from "Sarah the Seller" this "simple" transaction requires multiple steps and intermediaries, and has to go through a "settlement" process where all of the intermediaries have to reconcile their records with each other.
* All this record-keeping by all these intermediaries leads to wasted effort, mistakes, extra costs and delays. 
* Smart Contracts can fix this by automating the process. And because the the smart contracts operated on a single shared set of records, on a distributed ledger, they eliminate the need for all this wasteful, duplicative record keeping while at the same time, increasing transparency for everyone. In short, smart contracts will make this process faster, cheaper and help reduce mistakes
* At the same time, the adoption of smart contracts will face barriers to adoption, in particular incumbent players are likely to oppose the transition

## Background: How Stock Exchanges Work Today

In his article "A Simple Explanation of How Shares Move Around the Securities System" \[[1](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/stock-exchanges.md#sources)], Richard Gendal Brown explains that a typical stock transaction, i.e. "Patrick the Share Purchaser" purchases 100 shares from "Sarah the Share Seller" there are nine or more intermediaries involved in that, seemingly simple transaction. 

![From Richard Gendal Brown](/files/-MhVJFncUYz8BVpOToN-)

See his [very helpful piece](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/stock-exchanges.md#sources) for a detailed walk through of each of these intermediaries and the role that each plays. 

## How Smart Contracts Can Help Stock Exchanges Work Better

Smart contracts "make it possible for a group of independent parties to work with **universal data sources**, automatically reconciling between all participants." \[[2](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/stock-exchanges.md#sources)]

Thus smart contracts can:

1. Make the entire process of settlement more efficient, and more efficient while reducing "data errors, disputes and reconciliation lags". \[[2](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/stock-exchanges.md#sources)]
2. Offer more transparent data to participants. \[[2](/lawsnap-guide-to-smart-contracts/applications/smart-contract-use-cases/stock-exchanges.md#sources)]

## Stock Exchanges Exploring Smart Contracts

| Exhange                        | Project                                                                                                                             | Location    |
| ------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------- | ----------- |
| Australian Securities Exchange | [CHESS Replacement](https://www2.asx.com.au/markets/clearing-and-settlement-services/chess-replacement/about-chess-replacement)     | Australia   |
| Deutsche Börse                 | [Blockchain DLT](https://www.deutsche-boerse.com/dbg-en/our-company/deutsche-boerse-group/business-areas/blockchain-business-areas) | Germany     |
| Hong Kong Securities Exchange  | [HKEX Synapse](https://www.hkex.com.hk/Mutual-Market/Stock-Connect/Reference-Materials/Synapse?sc_lang=en)                          | Hong Kong   |
| Singapore Exchange             | SGX Marketnode                                                                                                                      | Singapore   |
| SIX Swiss Exchange             | [SIX Digital Exchange](https://www.sdx.com/)                                                                                        | Switzerland |

## Further Reading

Adam David Long, [How Smart Contracts for Finance Will Make Stock Markets Faster, Cheaper and Less Error-Prone](https://medium.com/@adamdavidlong/smart-contracts-for-finance-clearing-and-settling-securities-trades-6a774b28106f), 2018-09-06

SWIFT, [Smarter Securities](https://www.swift.com/news-events/events/smarter-securities-1), 2021-06-29

## Sources

\[1] Richard Gendal Brown, [A Simple Explanation of How Shares Move Around the Securities System](https://gendal.me/2014/01/05/a-simple-explanation-of-how-shares-move-around-the-securities-settlement-system/), 2014-01-05

\[2] Euroclear & Oliver Wyman, [Blockchain in Capital Markets, The Prize and the Journey](https://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/feb/BlockChain-In-Capital-Markets.pdf), 2016-02

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