The year 2018 has definitely witnessed the breakthrough of security tokens. The blockchain technology has permitted the tokenization of various forms of securities and assets. It is inarguable that security tokens have made it possible to tokenize almost everything that bears a value including equities, goods, real estate, fundraising, futures, credit, time based rentals, service leases, creative products such as music, art, and literature, credit, futures, and more.
Security Token Offerings are revolutionizing security markets and mitigating most of the problems associated with conventional security trading. The blockchain technology promotes transparency as all trades and ownership records are stored on public ledgers which cannot be tampered with. Security tokens make it possible to tokenize securities, so financial assets such as stocks, bonds, futures, equities, swaps, and forwards can all be managed via distributed ledgers.
However, where will security tokens be traded? Presently available cryptocurrency exchanges are not equipped to support security token trading. Moreover, most exchanges don't have the necessary licenses to permit the trading of securities. As such, licensed security token exchanges have begun to emerge to fill this gap and provide liquidity for the security token market.
Obviously, security tokens will attract an enormous share of Wall Street's money during 2019 and 2020. This expected shift has urged many venture capitalists and entrepreneurs to invest in the establishment of security token exchanges during the past couple of years. Throughout this article, we will take a look at security token exchanges that are expected to launch in 2019 and 2018's fourth quarter.
Before we get started, let's explore the most important security token exchanges that have been already established and are currently promoting liquidity of the security token market.
Current Security Exchanges
BTF is a crypto security investment platform that is only open to professional investors based on the user jurisdiction. To qualify to join BTF, investors have to have the registration process based on their country of residency, and should be able to invest at least $1,000 on BnkToTheFuture platform.
BTF is trying to establish itself as a market for blockchain-based projects that issue security tokens, shares, conventional bonds, futures, and other forms of tokenized securities.
By issuing their native token, BFT, they have taken a big step towards bringing together the highest net worth investors interested in tokenized securities, cryptocurrencies, and other forms of Fintech solutions. Users holding 10K BF Tokens get access to special deals on the BnkToTheFuture platform
tZero is the brainchild of Overstock which has been established to serve as an exchange for security tokens. The greatest thing about tZero is its user interface which is extremely friendly and easy to use. The platform boasts front-end integration of a risk management system, an order management system, an order matching engine, place orders, market orders, proprietary technology, and full support for security token trading.
tZero has partnered with Polymath to simplify the legal process of issuance and trading of security tokens. Polymath has innovated a new Ethereum based token standard, the ST20, which can only be owned and held by a list of authorized Ethereum wallet addresses, which have completed KYC verification procedures, which enforces compliance with government regulations.
tZero recently concluded the private sale phase of its security token (TZRO) which lasted til the end of August; that's when the trading platform went live.
Bancor has innovated the Smart Token protocol which is the seed for a decentralized cryptocurrency exchange. Smart Tokens can be continuously and autonomously converted to other tokens on the network using a technology that operates in a manner that is somewhat similar to Atomic Swaps.
Bancor has joined the world of Security Token exchanges. Literally, the Bancor protocol is fully compliant with security token trading and the BNT token will act as a connector token, or a bridge token, that can intermediate the exchange between any pair of security tokens.
MERJ was established in 2011 as the primary securities market of the Seychelles and has gone on to build an impressive collection of regulatory licenses and memberships, joining major operators NYSE and LSE as part of the World Federation of Exchanges.
The group began work in 2016 to provide regulated market infrastructure for digital securities, and in August 2019 went live with the world’s first stock exchange listing of tokenized equity. The group is a vertically integrated combination of exchange, clearing agency, and securities depository, enabling it to offer a full end-to-end service including issuance, trading, settlement, registry, and custody. As such it is the first regulated market globally to support primary and secondary markets for digital securities. The combination of institutional grade infrastructure, and direct access via web, mobile, and API for retail investors, means that MERJ has a comprehensive offering when it comes to attracting listings and liquidity.
The MERJ mission statement is to provide world class market infrastructure that combines the best of both worlds. With a strong management team and impressive track record, we expect MERJ to be a leading force in the world of security token exchanges.
Now, let's take a look at the security token exchanges that are expected to launch during Q4 2018 and 2019 through 2020.
Upcoming Security Exchanges
Gibraltar Stock Exchange
The Gibraltar Stock Exchange (GSX) is a Gibraltar based stock exchange. GSX was the first fully licensed stock exchange in Gibraltar. The exchange was fully operational in 2015's first quarter. In October 2017, the CEO of GSX announced the establishment of a new subsidiary for the exchange, the Gibraltar Blockchain Exchange (GBX), which aimed at the establishment of a regulated utility token marketplace. Soon after the GBX announcement, GSX Group Ltd. confirmed that it was planning to revamp the group's stock exchange (GSX) to become the world' first ever regulated security token exchange.
Even though trading of security tokens was planned to kick start by the fourth quarter of 2018, delay in regulatory approval by the Gibraltar Financial Service Commission (GFSC) led to adjournment of the process to the first quarter of next year. The launch of security token trading on GBX will mark a big moment for the crypto community as security tokens become recognized by an EU licensed stock exchange.
Coinbase, the popular US-based cryptocurrency exchange, has announced that it is on track to enable security token trading on its platform. Being based in the US, acquiring the necessary banking licenses and brokerage statuses can take years. To overcome this, Coinbase has decided to merge with companies that already have the required licenses and registrations. That's why Coinbase has successfully purchased three financial institutions: Venovate Marketplace Inc, Keystone Capital Corp, and Digital Wealth LLC.
Approval of these acquisitions by the government will help Coinbase acquire the legal standing of a full brokerage, which will enable the exchange to launch security token trading on its platform. It is expected that users will be able to trade security tokens on Coinbase in 2019, yet a specific date for the launch of Coinbase's security token exchange hasn't been announced.
Templum is another US based security token exchange that is planned to launch in 2019. Templum Markets LLC is a subsidary of Templum that is established to permit issuance and trading of various forms of tokenized assets.
Last February, Templum acquired Liquid M Capital, which gave the company access to an ATS, enabling a secondary market for the institution. Via the ATS, Templum will be able to offer security token trading on its platform in compliance with the US SEC regulations.
Even though Templum's trading platform is live, the listed tokens are very few. So far, BanQu was the only company to conduct a TAO, and BCAP is the only secondary trade successfully completed. Templum has just partnered with CUSIP Global Service to be able to bring the standardized identification number to ICO security tokens.
The platform is expected to be completely developed in 2019, enabling security token trading that is fully compliant with the US SEC regulations.
In 2009, SharesPost was established to open the door for online private equity secondaries. Today, SharesPost has over 50k accredited investors and has executed more than $4 billion worth of shares transactions for over 200 technology companies.
Last May, SharesPost announced that it would revamp its current ATS to be able to offer security token trading on its platform. Thereafter, the company announced in June that it managed to close a $15 million Series C round that had been led by LUN Partners and Kinetic Capital to expand their ATS and open markets in Asia. SharesPost's CEO aims at creating a global marketplace for trading of both conventional and tokenized security assets of various private companies.
Australian Securities Exchange
The Australian Securities Exchange (ASX), Australia's primary stock exchange, announced in 2017 that it was working on becoming the world's first stock exchange to develop an infrastructure for its trading platform based on the blockchain technology. ASX planned to use public ledger technology to replace its clearinghouse framework, known as Clearing House Electronic Subregister System (CHESS) to offer traders improved system efficiency, security, and reliability. Australia's top stock exchange is actually developing their own blockchain, i.e. "permissioned blockchain", to tokenize securities for the equity market in Australia.
Even though ASX planned on launching its security token trading platform in Q4 2020, the exchange's board has announced recently that the launch date was adjourned to March/April 2021. ASX started exploring various applications of the blockchain technology in 2015, in order to be able to replace the exchange's settlement, registry, and clearing system with a blockchain based system developed via collaboration with Digital Asset (DA), a software company specializing in the development of distributed ledger based solutions for financial institutions.
The new trading platform will operate on a permissioned blockchain where registered account holders will have to obtain clearance to be able to use it, while ASX will represent the only party with the ability to commit financial transactions to the ledger. As such, the new platform will represent a centralized network for trading of tokenized securities.
Malta Stock Exchange
Malta Stock Exchange has just inked a number of deals aiming at enabling MSX, the fintech arm of the exchange, to launch a trading platform for tokenized securities. These deals will see MSX partner with Neufund, a platform for the issuance of security tokens, to build a decentralized, fully regulated, stock exchange for trading of tokenized securities in addition to security tokens.
The partnership is planning a pilot during the next few month, which will include an ICO hosted on Neufund's primary market, and the ICO tokens will later on be listed and traded on Binance (via means of a separate agreement with Neufund).
MSX is working closely with the regulators in Malta to comply with the Malta Financial Services Authority Act. Malta has emerged as a haven for blockchain investors, with big businesses like OKEx and Binance relocating to the country, which has been referred to as the "blockchain island" during the past few years.
SIX Swiss Exchange
SIX Swiss Exchange, Switzerland's primary stock exchange, announced last July that it is developing a fully operational trading, settlement, and custody platform for security tokens and tokenized securities. The exchange's new project, which has been named "SIX Digital Exchange" (SDX), is intended to be the world's first end-to-end exchange for tokenized asset markets. SDX will tokenize existing conventional securities and other forms of non-bankable assets to boost the liquidity of illiquid assets. Furthermore, SDX's services will include the issuance, listing, and trading of security tokens. SDX will be fully compliant with the regulations of the Swiss financial regulator FNMA, and endorsed by the Swiss National Bank, similarly to the SIX Swiss Exchange.
London Stock Exchange
London Stock Exchange, one of the world's earliest stock exchanges, announced last July that it is collaborating with UK's main financial regulator, the Financial Conduct Authority (FCA), in addition to two UK based firms; 20|30 and Nivaru, to issue tokenized equities in a UK based company in full compliance with the regulations of UK's Financial Conduct Authority.
The planned partnership will utilize LSEG's Turquoise platform, a hybrid exchange that offers a broad universe of European equities. The equities will be based on Ethereum's blockchain and will be mainly comprised of ERC20 standard tokens. Later this month, 20|30 will be the first platform to test the process. Following a one year lock-up period, the service will be launched to the public, enabling startups and corporations to tokenize their shares. Interestingly, a large number of companies are awaiting to test out the process.
Finally, it is worth mentioning that all these emerging security token exchanges and trading platforms for tokenized equities represent just the beginning of a new era that will take equity markets to a whole new level. Blockchain based security tokens offer traders a myriad of efficiencies and advantages that promote transparency and security. Even though a considerable percentage of the world's conventional financial institutions are resisting utilization of the blockchain technology, the market has just begun to adapt, as we're witnessing the emergence of many trading platforms for security tokens and tokenized equities during the upcoming year. As more and more people are beginning to realize the advantages of the public ledger technology, the market will definitely start moving towards a new model based on tokenization of assets.
I wouldn't be surprised if all of the world's equity markets shift to the blockchain within the next few years. Who knows? Let's just wait and see!