Innovation in OTC derivatives markets: the impact of the distributed ledger technology?

Purpose This article examines the possible impact of blockchains on over-the-counter (OTC) derivatives markets. The article highlights the advantages as well as the risks and challenges of this technology, thereby contributing to the literature on blockchain adoption. Design/methodology/approach This article reviews existing innovation and financial literature, followed by a conceptual, theoretical part where the impact of the distributed ledger technology on OTC derivative markets is explained. Findings Blockchain technology and smart contracts enable process innovation for OTC derivatives markets, given that they could lead to enhanced automation and fewer manual errors. Yet, some barriers have to be overcome for DLT to be widely adopted. Research limitations/implications Because there has not been empirical data available regarding the usage of this technology, no empirical analyses could have been performed. Practical implications The paper provides a phased implementation framework for DLT adoption in OTC derivatives markets and identifies critical success factors at each stage of adoption. Originality/value This article makes a significant contribution to the literature by explaining the ways in which blockchain technology facilitates process innovation. Furthermore, it enhances the body of research on disruptive technologies and offers valuable insights into how regulatory frameworks can foster innovation.