The operator of Switzerland’s stock exchange is backing distributed ledger technology, arguing that — in the right hands — the technology is ready to earn the trust of the investment community.
In July the Swiss Stock Exchange (SIX) announced plans to launch a blockchain-based exchange for the trading, settlement and custody of digital assets. Called SDX, this digital exchange facility will be created under SIX’s status as a regulated, trusted and experienced exchange infrastructure provider.
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With plans to launch mid-way through next year with a minimum viable product, SIX is currently selecting the technical platform provider for the new exchange and working with regulators to design a legal framework for the digital ecosystem which is on par with the rules in place for the existing exchange.
Speaking with Which-50 on the sidelines of the Sibos conference in Sydney this week, Valerio Roncone, head product management & development, Swiss Stock Exchange, said the new exchange will offer transparency, accountability and stability that has been lacking in the “wild west of crypto.”
“We have to make sure whatever we do is very stable, accountable and secure. These are very important values we want to transport into the digital space,” Roncone said.
Having completed a number of DLT pilots, Roncone says SIX developed a clear understanding of the technology and the problems it can solve.
“We have a firm belief that we are able to take the technology and bring it to the maturity level an institutional investor would require to do investment in that space.”
Roncone said they are not expecting to see an “overnight disruption” and the digital platforms and traditional platforms will coexist for a period of time.
“We at SIX will build a bridge between the two so that our participants are able to cover the whole space and they can adapt over time to their own pace.”
SIX hopes the digital exchange will meet market demands for a safe venue for issuing and trading digital assets, as well as enabling the tokenisation of existing securities and non-bankable assets.
“We are bringing the two platforms close to each other and connect them so that people can decide if they want to do business on the traditional platform or the digital or both.”
Similarly, IPOs and ICOs (initial coin offerings) will also co-exist as instruments to raise capital, albeit for different purposes.
“We believe IPO will still exist, because an IPO is a form of financing which is very, very important for a number of companies,” Roncone said. “If you want to have participation in equity then of course that’s the preferred way you go.”
ICOs raise funds by creating and issuing tokens on blockchain. Unlike an IPO they don’t buy you equity in a company, instead investors are betting on the value of the token going up.
Ronconce said providing a safe and stable environment to conduct ICOs would allow a range of companies access to smaller amounts of capital.
“Today in an investment banking environment, probably nobody would listen to you for an IPO lower than $50 million, but you have a number of companies that do not need $50 million they maybe need $15 or $5 million,” Roncone said.
“Between $50 million and $5 million there is a huge space you need to cover — that’s the space the ICO could cover.”
Without equity changing hands, ICOs allow investors to back specific projects, for example FMCG giant like Nestle could issue tokens to raise money for a specific new product in its wider product portfolio.
It will also give privately held businesses new avenues to raise funds.
“[For example] Today if a museum needs money they need to go to the government or donors and ask for money. Tomorrow, with an ICO, by issuing a token a museum can take finance directly from the market.”
It’s early days for ICOs, and their reputation is still closely linked to the highs and lows of the cryptocurrency landscape. Earlier this month Yahoo Finance reported the SEC is investigating hundreds of start-ups which used ICOs to raise money, examining whether their tokens were classed as a security, which needed to be properly registered with the SEC.
In Australia, ASIC is keeping an eye on the market, issuing guidelines for conducting ICOs in 2017 and warning consumers to be wary of investing in tokens.
The role SIX hopes to play is providing ICO services which adhere to a clear standard.
“An ICO is not evil, it’s only evil if it is done in an non-transparent, not safe way,” Roncone said.
“If it is transparent, if it’s regulated, if you have somebody who is accountable, then the ICO process can be something very, very important for a whole economy. If you all of a sudden have a new financing source to bring capital to the business this is very beneficial for a whole economic community. That’s the role we want to play,”
“By taking over that role and by providing ICO services we will set a clear standard. So whoever is not complying with those standards of course will not be able to make use of our ICO process.”