Capital Market rEvolution

The Polish capital market has from the very outset attracted a high degree of innovation and technological advancement. When it was founded in the early 1990s, a bold decision was made that financial instruments introduced to trading would be dematerialised and their trading and clearing would be based on IT systems.

Poland is seen as one of the leaders in the digitalisation of the financial sector, which is the largest user of digital technologies. According to the Polish Bank Association (ZBP), the vast majority of banking transactions in Poland – over 90% – are executed digitally, mainly via mobile and online banking. The vast majority of stock market investors – 94% – use online brokerage accounts.

Further digitalisation and the adoption of new technologies in the capital markets are essential as competition in the world of digital finance is gathering pace. The largest market is the cryptocurrency market, obviously linked with blockchain. Let’s look at the figures: the Kraken cryptocurrency exchange has run a survey asking Poles what assets they invest in. Cryptocurrencies were named by 30.9 percent of respondents, shares by 21.5 percent, and bonds by 19 percent. Similar figures emerge from the latest National Investor Survey – over 31 percent of respondents say that they invest in cryptocurrencies.

By capitalising on the benefits of blockchain, including the ease and, above all, speed of transactions, the crypto market is attracting investors, particularly young ones. Naturally, the security of such platforms is a different matter.

Blockchain in the Capital Market

Blockchain drives the redefinition and creation of new models for storing and transferring ownership of assets and building trust among market participants in a shared decentralised IT solution.

Traditional capital market infrastructure can only be effective, efficient and secure at the cost of considerable complexity and centralisation of processes. Each transaction requires the cooperation of multiple actors and the reconciliation of data stored in separate IT systems operated by market participants.

In this context, distributed ledger technology could significantly improve the functioning of capital markets, enhancing efficiency, mitigating risks and reducing transaction costs. The core value offered by DLT is the sharing of a single, immutable and transparent ledger by all market participants, while maintaining confidentiality and professional secrecy.

As all market participants can share a single distributed system, DLT-based systems could, in theory, eliminate intermediaries in market processes. On closer inspection, however, it seems that excluding professional intermediaries from the value chain generates a number of new risks. The presence of institutions such as central securities depositories, banks and investment firms is essential for ensuring the stability of capital markets. These entities play a key role in managing systemic risk, protecting investors and meeting regulatory requirements, including requirements arising from KYC and AML regulations.

In recent years, many European capital markets infrastructures have sought to test blockchain and its potential by running pilot projects, including the French firm LiquidShare, the German firm HQLAX, and FundsDLT from Luxembourg.

These were not merely pilot projects. SIX Digital Exchange (SDX) is one of the most advanced institutions using blockchain in institutional securities trading. SDX, which is part of the Swiss SIX Group, holds two key licences from FINMA (the Swiss regulator): as a stock exchange and as a central securities depository. It is a fully regulated capital market infrastructure based on DLT ¹.

The Polish capital market is not standing by in the face of new global technological trends. Building on the experience gained from pilot projects, KDPW launched the Capital Market Blockchain Platform in 2019, an open and fully secure infrastructure based on a private network model. The first commercial solution implemented by KDPW to utilise blockchain was the eVoting service, enabling remote voting at general meetings of companies. The next implementation was eVoting-board, enabling remote voting at meetings of corporate boards. Thanks to blockchain, the organisation and management of voting has been transferred to a fully digital environment in full compliance with legal requirements and with the necessary level of security for electronic communications.

Changes on the Horizon

Just a few days ago, the DTCC, a central securities depository and clearing house in the US, was authorised by the US Securities and Exchange Commission (SEC) to tokenise selected assets held in the central depository, including shares and ETFs. This is the first step towards introducing the US capital market to the world of blockchain. The service is planned to be launched in the second half of 2026. Clearly, the recent statement of the CEO of BlackRock, the world’s largest asset management firm, is coming true. Larry Fink told The Economist that blockchain is not just about Bitcoin, it is the foundation of a new infrastructure for the entire capital market.

CSDonDLT: KDPW Responds to Technological Changes

The companies of the KDPW Group have for years been investing heavily in the development of technology-based services, supporting the digitalisation of the financial market and the Polish economy. The CSDonDLT project is a response to the technological challenges facing post-trade infrastructure. It builds on KDPW’s existing experience and observations regarding the potential and benefits of using blockchain as a complement and functional extension to traditional capital market infrastructure.

Our analyses have shown that, from the perspective of the local capital market, the greatest potential for applying the new post-trade infrastructure model lies primarily in the over-the-counter (OTC) segment. The CSDonDLT project is being implemented as an additional, complementary layer of the depository and settlement system based on blockchain. At this stage, the project focuses on the settlement of OTC transactions and covers the safe-keeping and free transfer of securities, as well as atomic settlement of transactions in the DLT layer.

The implementation will allow market participants, including securities account operators, to maintain and even expand their role; by broadening the scope of their services, they will be able to offer new, innovative tools and functionalities enabling, among others, the continuous settlement of securities transactions regardless of the availability of traditional systems.

The complementarity, and thus full interoperability, of both layers of the depository and settlement system will enable seamless transfers of securities from the traditional layer to the DLT layer and vice versa without the need to develop dedicated migration strategies, as is the case with separate, closed silo systems. The functional and technological expansion of the existing infrastructure will drive the development of diverse business models based on a distributed layer of the settlement system, which can serve as one of the foundations for the flow of value in a shared distributed ecosystem.

The KDPW Group is constantly expanding its capabilities and deploying new technologies to broaden its range of services, adapt to the growing needs and requirements of clients, and strengthen the position and competitiveness of the Polish capital market.

The CSDonDLT project is designed to improve operational efficiency and cost efficiency, increase transparency, and minimise operational and systemic risks in full compliance with applicable legislation and capital market standards.

It is our response to global trends in the capital markets.

¹ Distributed Ledger Technology (DLT) is a broader concept encompassing various methods of distributed data storage. Blockchain is its most popular form; it groups data into blocks and cryptographically links them into an unbreakable chain, ensuring immutability and transparency.