Last spring, my teen daughter and I visited Paris. Between croissant baking classes and flea market shopping, our plans included a visit to the Louvre. At the top of her list: the "Mona Lisa." At the top of mine: an esoteric relic of ancient commerce that, one could argue, has affected anyone who has engaged in the markets for thousands of years.
Deep within the museum's Sully wing, I came face-to-face with something I had long known of but had never seen: a hollow clay sphere dating from 3500 B.C.E. in Sumer, Mesopotamia. Archeologists believe this sphere, called a "bulla," was a means to facilitate the movement of goods between counterparties. Inside the bulla, which would fit into the palm of my hand, were individual clay tokens that likely represented grain, sheep or other goods; carved on the surface were descriptive terms around the date, quantity of goods and mechanism of delivery. The bulla was an asset
In today's markets, we rely on similar mechanisms — from derivatives contracts to exchange-traded funds to digital tokens. Industry standards and technology together have shaped markets for thousands of years. And when they are used to improve transparency, access and resilience in markets, investor confidence and participation increase.
The story of markets is told through critical moments of new technologies and the rules governing their use. The evolution of contract law from the "Code of Hammurabi" (the ancient Babylonian legal text also at the Louvre), provided the basis for lending and the earliest examples of interest payment and collateral posting. Thousands of years later, contracts were standardized in ancient Greece to support the shipping economy and the capital requirements for long-distance trade. In the 17th century, clearinghouses emerged at the Dōjima Rice Exchange in Osaka, Japan, with systems of settlement and counterparty risk management that underlay today's commodities futures markets.
My point of view on market progress sharpened in 2008, after my daughter was born. I spent the first few weeks of my maternity leave watching news headlines. Regardless of your views on the root cause of the global financial crisis, it unleashed a wave of technology reform alongside changes in industry practice and regulation that still shape markets.
Federal Reserve Vice Chair for Supervision Michael Barr conceded major points to the industry on last year's capital reform proposal. But how regulators will approach other reforms in light of that experience is uncertain.
In September 2009, leaders of the G20 nations convened in Pittsburgh to discuss financial markets and the post-crisis path forward, including reforming financial regulation and supervision. These leaders committed to critical reform principles around transparency (public reporting), access (multilateral trading) and resilience (central clearing). Adoption of new technology was a prerequisite to achieving these goals. As a result, there is more data available than ever before on securities and their prices. The bond market, previously traded via voice, has gone electronic — broadening access and transparency. Earlier this year, within a span of a few days the markets achieved a goal nearly 30 years in the making: moving from a T+2 to a T+1 settlement cycle, halving the amount of time market participants were subject to counterparty delivery risk. Today, financial markets are more transparent, accessible and resilient than ever before, thanks to this integration of new technology into industry practices.
Alongside the reforms shaping financial centers across the globe, the theory of decentralized finance became reality. On Oct. 30, 2008, (three weeks after my daughter's birth), Satoshi Nakamoto published the now-famous blockchain whitepaper to propose a "system for financial transactions without relying on trust." The paper's creation — bitcoin — is the most widely adopted crypto asset and had a market capitalization of $1.28 trillion as of July 2024. Clear, consistent regulation that prioritizes the investor experience will allow this technology to meet its potential.
We now have another opportunity to merge transparency and regulation, improving market stability and participation. I believe the convergence of technology like blockchain with the continued evolution of rules and industry standards in "Trad-Fi" will shape the next era of market progress. Tokenization, in particular, will transform our markets, just as the tokens inside the clay bulla transformed the world thousands of years ago.
Every day my colleagues and I are focused on helping to make markets more resilient and accessible. What does success look like? To me, it means more and more people will see themselves as investors, participating in the markets to grow their wealth and save for goals like retirement or a legacy for their children. My hope for my daughter is that she, and perhaps her future daughter, will be empowered and inspired by stories of progress along whatever professional paths they choose.
