ZURICH (Reuters) - Swiss exchange SIX expects its traditional trading platform to be overtaken within a decade by an alternative it is launching that will be based on blockchain technology.

Slideshow ( 2 images )

Although stock and bond dealing on SIX and most other exchanges are now fully electronic, the underlying processing steps are often based on old protocols of paper and post.

“The existing system could be completely replaced by the digital exchange in about 10 years,” Thomas Zeeb, head of securities and exchanges at SIX, told Reuters.

SIX Digital Exchange (SDX) is scheduled to launch in mid-2019 and initially run parallel to the existing SIX platform, which involves three steps to complete a purchase or sale of securities, often over several days.

Two of them vanish in a blockchain distributed ledger, meaning a transaction can be completed in fractions of a second.

“The moment that brokers, banks, insurance companies and big asset managers really see the cost advantages, they’ll move relatively quickly,” Zeeb, a Canadian, said.

Although many exchanges are working on such projects, including Deutsche Boerse DB1Gn.DE, SDX is the Swiss stock exchange's reaction to threats posed by start-ups.

The boom in cryptocurrencies like Bitcoin, which is underpinned by blockchain, quickly brought Coinbase in San Francisco or Hong Kong-based Binance millions of customers.

“They are pushing into our business and especially the banks ... That’s a big danger,” he said, adding that challengers could bypass banks or stock exchanges completely.

SIX still needs to clarify legal issues with the Financial Market Authority watchdog and the Swiss government.

Once these are clear, SDX is likely to offer trading in selected stocks, followed by other stocks and later bonds and possibly exchange-traded funds, Zeeb said.

Even assets that are not securities -- such as paintings or vintage cars -- could one day change hands on SDX.

Although SDX, which was first revealed in July, is likely to shy away from bitcoin trading, it does plan to help companies raise capital through an initial coin offering (ICO) and has already had several expressions of interest.