After nearly five years of experimentation, blockchain has reached an important milestone in financial services. This year, several distributed ledger technology platforms are either running live or preparing to launch. As the industry starts to transition
from its initial stage of research and development to this new phase of operations and growth, it’s time for market participants and technology providers to turn their attention to what comes next: the full integration of blockchain-based systems into the
broader financial market infrastructure.

Beginning in roughly 2017, technology professionals began experimenting with ways to apply blockchain or its underlying distributed ledger technology to financial markets. Although some proponents in the industry and media predicted sweeping, even revolutionary
change, the actual goals of most developers in these early stages were much more modest. They were trying to figure out if the technology could work in financial markets, and if so, where would it be most relevant and valuable. By 2019 several promising targets
had emerged, and sell-side firms and technology providers began developing use cases for DLT. As a rule, these use cases were narrow in scope, with each aimed at addressing a single function or market “pain point.”

The winners from those use case trials are now going live. Among these early market entries are focused on the equity clearing and settlement areas; and the securities lending market, the latter group, includes the Distributed Ledger Repo platform developed
by my own firm, Broadridge, which is scheduled to go live in June. The launch of these platforms marks the beginning of a new stage in the evolution of financial market blockchain. In the months ahead, these systems will compete with existing platforms and
providers for business in essential functions like clearing, settlement and securities lending/repo.

However, if providers of blockchain-based systems have any hopes of establishing their products as market mainstays, they cannot wait for the results of this early competition to start preparing for the future. Even if these new DLT platforms prove fantastically
efficient and successful at their assigned missions, they will struggle to attract business over the long term if they can’t be integrated into clients’ workflows for trading and other functions as well as other DLT platforms.

In fact, blockchain systems designers have only a narrow window to consider how their platforms will interact with the rest of the market structure. Financial market technology platforms cannot exist in isolation. But interoperability is hard to achieve
as an add-on. Banks and other financial service firms know this first hand from their experience with “legacy” technology platforms, which in many cases were developed over time as a series of individual systems designed and customized for specific tasks.
The siloed nature of these systems proved a significant impediment as firms moved to upgrade and modernize their technology base.

The same dynamic will play out as clients begin utilizing DLT-based platforms built to perform specific tasks. To avoid the inherent limitations of siloed systems, DLT platform providers should be adopting interoperability as a North Star when designing
their own systems architecture.

From the perspective of potential clients, interoperability has two main facets:

Technology: It’s impossible for providers to know what the systems of tomorrow will look like. But it is possible to build your own technology in a way that makes it flexible enough to accommodate whatever comes next. For example, my firm, Broadridge,
built our DLT platform using Digital Asset Modeling Language that can be deployed and transported to various ledgers. This will give clients confidence that they will be able to integrate the Distributed Ledger Repo platform with other systems they use for
clearing, settlement and other key functions.

Operations and Compliance: It’s not enough for platforms to integrate into the industry’s technology infrastructure. They must also fit into the broader—and constantly evolving—regulatory framework. That means building platforms that not only align
with clients’ current compliance requirements, but also have the flexibility to adapt and conform to future regulatory changes.

Although banks and other sell-side firms have played a key role in the development of early blockchain solutions, third-party developers might lead the way when it comes to interoperability. Simply put, third-party providers have the biggest natural incentive
to make their products accessible to the widest possible audience.

However, interoperability is a business imperative for DLT platform providers of all types. As the launch of new platforms moves the industry from early R&D to live operations, it’s time for system designers and platform clients alike to prepare for the
future. The blockchain will live up to its transformative potential only if platforms are built right, with interoperability embedded from the start.