Numerous countries seek to dematerialize the financial market by moving from traditional physical securities tracking to digital securities track using blockchain technology. Global issuance is easier and cheaper with digital securities. Smart contracts stream the business operation of issuers. On the investor’s side, digital securities grant access to a larger pool of investment opportunities while reducing settlement fees and times
The Race to Be a Security Token Exchange
Intercontinental Exchange (ICE), the owner of the New York Stock Exchange (NYSE), revealed digital currency exchange Bakkt in 2019 – “Bakkt” being a play on words for “backed”, or “asset-backed securities”. Bakkt’s focus is warming Wall Street to the idea of virtual currency trading and acting as a scalable crypto on-ramp. The project is in progress and will be complete by 2023.
The Australian Securities Exchange (ASX), a leading cryptocurrency exchange in Australia, teamed up to convert its existing exchange platform to distributed ledger technology. The ASX offers distributed ledger tech as a client service, which allows clients to have better access to data and smart contract assisted optimized workflows.
Canada and Asia are also seeing traditional exchanges explore the digital asset market. Synapse was recently introduced by the Hong Kong Exchange and Clearing Limited. This distributed ledger technology-assisted system facilitates ownership and movement of securities after purchase. Meanwhile, the Canadian Securities Exchange (CSE) launched a settlement platform and promotes the use of Security Token Offerings (STOs), which many companies have used as semi-regulated and accelerated paths to market.
Major exchanges are also starting to see the potential for digital securities. They are well-positioned to compete in the marketplace, with blockchain technology already in use. They have slowly been acquiring the licenses to trade traditional securities online, despite operating in the unregulated cryptocurrency market.
Cryptocurrency giant Binance caught the attention of global regulatory agencies in mid-2021 when it began offering a product it called “stock tokens”, tokens whose values were pegged to publicly traded stocks. Binance stopped selling securities products after it received threats of severe legal action from those who were not properly licensed. Binance CEO Changpeng “CZ” Zhao then announced Binane’s plans to become a fully regulated financial institution.
As described by Quinlan & Associates, Huobi and Coinbase, having already secured broker-dealer licenses regulated by the SEC and FINRA, are on their way to offering security tokens as well, cementing the inevitability of security tokens as a major market force.
Security Token Exchanges
Both traditional and crypto exchanges will face significant challenges during their transitions. Legacy technology and paper-based security are holding back traditional exchanges. It may be difficult for cryptocurrency exchanges to change their perceptions from being cryptocurrency experts to those who are digital asset specialists.
As a result, new broker-dealers in digital assets, also known as blockchain exchanges have begun to enter the marketplace. Archax was the first London-based security token exchange that was regulated under the Financial Conduct Authority. tZERO is an alternative trading system that the SEC regulates. INX offers trading platforms for regulated security coins and cryptocurrencies.
However, there are problems with blockchain exchanges. Blockchain exchanges are often started by people who don’t know much about licensing. Financial organizations that have both full digital licensing and high-tech capabilities are left with a gap.
Positioned to fill that white space, Fusang, founded in Malaysia in 2015, is Asia’s first fully-licensed digital securities exchange. Fusang provides a platform that allows global investors to make investments in digital securities via on-chain digitization. This includes real assets such as shares, bonds and funds. It offers several products for managing digital assets.
Fusang’s exchange excels where traditional asset exchanges fall short – technology, fulfillment, product access, and market access. Fusang Vault is a secure and fully-licensed custodial service provider that protects clients’ assets from external threats. Fusang Digital Identity can also be used in modularized, flexible and scalable ways. Fusang is a client-onboarding company that provides one-stop services. They offer KYC, AML and risk assessments to help clients quickly and efficiently onboard both corporate and retail customers.