The Merging of Finance and Technology

In the fast-paced world of finance, traditional methods often clash with cutting-edge technology. One such intersection is being forged by Morningstar Credit Ratings, a division of the financial services titan Morningstar. They are stepping into the realm of blockchain, seeking to modernize the staggering $117 trillion debt securities industry. No, this isn’t a plot twist from your favorite thriller; it’s actually happening!

Tokenizing Debt Securities

According to a report from Forbes, Morningstar is on a mission to develop a comprehensive evaluation system for debt securities that are issued as tokens on a blockchain. Imagine each dollar you lend as a digital fingerprint! Michael Brawer, COO at Morningstar Credit Ratings, has voiced that they are collaborating with blockchain-oriented firms eager to innovate their debt instruments.

Rating the Right Way

Morningstar rates a plethora of assets, giving investors a snapshot of potential returns based on history. With a one-to-five scale in their tool belt, they’re not just tossing darts while blindfolded. This isn’t their first tango with blockchain; since June 2018, they’ve explored how companies like Bank of America, Apple, and Walmart could leverage blockchain tech and its potential implications for credit rating agencies.

A Peek into Their Projects

Currently, Morningstar has two critical projects in the pipeline:

• Ethereum Integration: Utilizing technology known as oracles, Morningstar aims to directly implement its bond rating system onto the Ethereum blockchain. Think of oracles as trusted messengers, ensuring that the data flowing to the blockchain remains untouched and secure, thus making it suitable for smart contracts.
• Quantitative Models: The second focus involves adapting quantitative rating models for debt securities onto a blockchain. These models help credit agencies assess the creditworthiness of various debt securities, so folks can choose wisely without needing crystal balls.

Projected Timelines

According to Brawer, the smart oracles project may be ready for action by the end of 2019, making it sound like they’ll be ringing in the new year with some serious tech. However, the blockchain modeling project might not hit the ground running until late 2020. Clearly, good things come to those who wait!

Partners in Blockchain

Morningstar isn’t going in alone; potential partners in this venture include startup Figure, the alternative investment provider Cadence, backed by Coinbase, and Polymath, a decentralized finance platform. It’s like a high-stakes game of poker — everyone brings something to the table!

The Regulatory Maze

However, before stepping too boldly into blockchain territory, there’s a question hanging over the entire operation: does Morningstar need to receive approval from the Securities and Exchange Commission (SEC) for its blockchain methodology? Brawer hints that the governance process is complex, tethered to the Dodd-Frank law and SEC regulations like a dog on a leash.

While innovation grips the debt securities market, Morningstar’s blockchain journey highlights the potential for reshaping this sector, one cryptocurrency at a time.