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© 2016 CME Group. All rights reserved. The Digitization of Everything: Blockchain Technologies and Beyond Sandra Ro, Executive Director, Digitization Lead CME Group Twitter: @srolondon Central Bank of Brazil Policy Panel: Financial Innovation & Technology 12 August 2016

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Page 1: The Digitization of Everything: Blockchain Technologies ... · PDF fileThe Digitization of Everything: Blockchain Technologies and Beyond ... Capital Markets ... The Digitization of

© 2016 CME Group. All rights reserved.

The Digitization of Everything: Blockchain Technologies and Beyond

Sandra Ro, Executive Director, Digitization Lead

CME Group

Twitter: @srolondon

Central Bank of Brazil – Policy Panel: Financial Innovation & Technology

12 August 2016

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© 2016 CME Group. All rights reserved.

I. Why the Hype? (the Hope)

Financial Services & Blockchain Technologies

II. So What? (the Reality)

CME Group’s Digitization Approach

III. What is Potentially Next? 2016 and Beyond

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© 2016 CME Group. All rights reserved. 3

2016: Blockchain Applications in Early Development

Food Supply Chain

Management

Banking for the

unbanked

Digital rights and

ownership

Healthcare

Provenance of

commodities

Decentralized

autonomous

organizations

(DAOs)

Land Registry

Financial

trading and

post trade

services

Digital assets

and currencies

Cybersecurity and terrorism

surveillance

Regulation and

Law

Identity Data,

information,

any record

keeping

Capital Markets

and Derivatives

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© 2015 CME Group. All rights reserved.

Why will Digitization change Financial Services?

Potentially significant cost savings and new opportunities

The annual cost savings potential from digitizing Post Trade services alone is estimated

to be upwards of $15 Billion*.

In addition to potential billions in cost savings, new business models and businesses to

be protected or created. As a result:

… and many have invested over $1B in Blockchain technologies in 2015

Note: Digitization refers to digital technology including but not limited to Blockchain, distributed ledger technology, and other emerging applications like smart

contracts.

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© 2016 CME Group. All rights reserved.

Explosion in Blockchain Companies, Amount of Money

Invested, and Range of Participants in 2015

Note: This is not a comprehensive list

Source: StartupManagement.org

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Potential Strategic Implications across Industries

Source: Let’s Talk Payments

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© 2016 CME Group. All rights reserved.

I. Why the Hype? (the Hope)

Financial Services & Blockchain Technologies

II. So What? (the Reality)

CME Group’s Digitization Approach

III. What is Potentially Next? 2016 and Beyond

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Hype vs Reality: Testing Blockchains in the Real World

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Sources: Bart Suichies, “Why Blockchain must die in 2016”, 21 December 2015, The Medium

https://www.linkedin.com/pulse/why-blockchain-must-die-2016-bart-suichies

based on Gideon Greenspan, CEO Multichain, “Avoiding the pointless blockchain project”, 22 November 2015

http://www.multichain.com/blog/2015/11/avoiding-pointless-blockchain-project/

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© 2016 CME Group. All rights reserved.

I. Long Term Vision and Strategy

II. Research, Debate, FinTech Network

III. Proof of Concepts and Projects:

DLT / Blockchain related

Digital Assets / Crypto related

IV. Engagements:

Internal: Crypto / Blockchain education for all employees

External: The Linux Foundation – Hyperledger Project,

Post Trade Distributed Ledger (PTDL) Group,

IOSCO / WFE Blockchain Task Force,

FIX Cryptocurrency and Blockchain Working Group

V. CME Ventures

Independent investment arm of CME Group

Strategic equity investments: Ripple, DAH, DCG

CME Group Digitization: Focused Approach

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Industry Participants are Investing in Blockchain Startups

Company Businesses 2015/2016 Raise Financial Institution Investors

Coinbase Bitcoin wallet, merchant

processing. and BTC exchange

$106m to-date

$75m in Jan.2015 NYSE, BBVA Ventures

Circle Bitcoin payments

$136m total to date

$50m in Apr. 2015

$60m in Jun 2016

Goldman Sachs, IDG China

Ripple International payments and

settlement $32m in May 2015

CME Ventures, Santander

Innoventures, Google Ventures,

(SBI)

Chain Private and public blockchain

solutions

$43.7m to-date

$30m in Sept. 2015

Nasdaq, Capital One, Fiserv, Visa,

Citi Ventures, Orange

Digital Currency Group Digital currency and blockchain

portfolio

$28m in Sept 2015

$10m (tbc) in Apr

2016

CME Ventures, Mastercard, CIBC,

NY Life, Transamerica Ventures,

OMERS Ventures

Digital Asset Holdings Private blockchain solutions $62m in Jan 2016

JPMorgan, CME Ventures, ASX, GS,

ICAP, Santander, PNC, BNPP, ABN,

Deustche Borse, DTCC, Citi

Blockstream Interconnectivity between

blockchains and ledgers

$76m to date

$55m in Feb 2016 AXA Ventures

21 Inc. Embeddable bitcoin mining chip $121m to date

$116m in Mar 2015 Qualcomm Ventures

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CME Ventures’ publicly announced investments are highlighted in green.

http://www.cmegroup.com/cme-ventures.html

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© 2016 CME Group. All rights reserved.

I. Why the Hype? (the Hope)

Financial Services & Blockchain Technologies

II. So What? (the Reality)

CME Group’s Digitization Approach

III. What is Potentially Next? 2016 and Beyond

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• Technology does NOT live up to the potential promise

oScalability issues

oUse cases do not generate efficient processes and cost savings

oSecurity concerns

oTransaction anonymity and privacy

• Industry standards and harmonization attempts fail

• Exogenous technology threats (e.g. quantum computing or new

technology overtakes blockchain)

• Regulatory contradictions or ambiguity across jurisdictions

Risks to Blockchain / Distributed Ledger Adoption

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• Scrutiny of blockchain applications and potential use cases

- As more traditional service providers and fintech firms move to blockchain-based applications, look for regulatory agencies to review and potentially take action:

• first through surveys and informational meetings • targeted investigations / reviews • perhaps even enforcement actions (e.g. CFTC)

• Formation of Industry Consortiums, Attempts at Common Standards, and FinTech M&A

- Many different industry groups have been created in the past year around the world: Post Trade Distributed Ledger (PTDL) Group, The Linux Foundation – Hyperledger Project, R3CEV, and others

- 1Q16 was a very difficult venture capital fundraising environment for fintech firms vs 2015, rebounding in 2Q16

• increased opportunities for small acquisitions and mergers of start ups • fintech start ups “pivoting” from original business models to “blockchain” business models

• Government Agencies, Regulators increased interest in blockchain technologies

- Increasing interest and research by government and regulators regarding impact of blockchain technologies

- Central banks researching digital currencies; Bank of England, FCA, MAS setting up Fintech sandboxes

• Spotlight on terror financing

- In the wake of the terrorist attacks in Paris, there has been an increased focus by governments on the ways terrorists communicate and move money

- UK Treasury released risk assessment or money laundering and terrorist financing, finding that digital currencies present the lowest risk for money laundering

- Report: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/468210/UK_NRA_October_2015_final_web.pdf

- Greater anxiety will bring increased attention to the risks posed by possible terrorist misuse of digital currencies

- However, blockchain / DLT can help track, identify, and prove illicit money flows better than any cash transaction or even wire transfers

4 Trends to Shape 2016 Crypto & Blockchain Regulation

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Thank you Questions?

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© 2016 CME Group. All rights reserved.

Appendix: Additional Reference Information, including

Bitcoin and other Digital Assets

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© 2016 CME Group. All rights reserved.

Bitcoin and Blockchain:

https://www.youtube.com/watch?v=YIVAluSL9SU

BBC and Bitcoin and Blockchain:

https://www.youtube.com/watch?v=2ky3mDUoh74

Ethereum Project:

https://www.youtube.com/user/ethereumproject

and many more videos on youtube

Reference: Bitcoin, Blockchain, Ethereum Videos

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• A collaborative effort created to advance blockchain technology by identifying and

addressing important features and currently missing requirements

• Goal to create a cross-industry open standard for distributed ledgers so virtually

any digital exchange with value, such as real estate contracts, energy trades,

marriage licenses, etc. can securely and cost-effectively be tracked and traded

• Announced 30 Founding Members and code proposals on February 9th

- Members include CME Group, Deutsche Borse, Digital Asset Holdings, Hitachi, IBM, Intel, JP Morgan,

Red Hat, R3, and Wells Fargo

• Further announcement of new members to date: 44 institutions in total

• https://www.hyperledger.org/

The Linux Foundation - Hyperledger Project

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• A focused initiative launched by global banks, clearing houses and exchanges to

focus on implications of DLT on post-trade financial services, particularly on

regulatory impact

• PTDL is formalising as a group under transparent governance and organisational

structure in the coming weeks

• Public announcement: May 3rd

- http://www.coindesk.com/ptdl-group-37-members-post-trade-ledgers/

• 45+ global, institutional members and external advisors:

- Organising committee members are: LSE Group, HSBC, UniCredit, Euroclear, State St, and CME

Group

- Membership is unique as it includes the top global infrastructure players as well as regulators in DLT

dialogues across continents, not just USA, UK

- UK regulators as well as other regulators are ‘observing’ members

- Ernst & Young, Norton Rose Fulbright, and Citigate Dewe Rogerson as external advisors

The Post Trade Distributed Ledger (PTDL) Group

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© 2016 CME Group. All rights reserved.

Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of

a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders

should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one

trade because they cannot expect to profit on every trade. All references to options refer to options on futures.

Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are ECPs within the

meaning of section 1(a)12 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract’s

value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use

funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because

they cannot expect to profit on every trade.

Any research views expressed are those of the individual author and do not necessarily represent the views of the CME Group or its affiliates.

CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago

Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX, New

York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity

Exchange, Inc. KCBOT, KCBT and Kansas City Board of Trade are trademarks of The Board of Trade of Kansas City, Missouri, Inc. All other

trademarks are the property of their respective owners.

The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for

any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should

not be considered investment advice or the results of actual market experience.

All matters pertaining to rules and specifications herein are made subject to and are superseded by official Exchange rules. Current rules should be

consulted in all cases concerning contract specifications.

Copyright © 2016 CME Group. All rights reserved.

Disclaimer

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