With a vision of getting away from “tailor-made, one-by-one private placement, to a sustainable, digitalized, process-driven business”, Switzerland’s SIX Digital Exchange (SDX) says it has performed the first-ever DLT-based tokenization of equity shares in a fully regulated CSD.
While Zurich’s tech startup incubator F10 – indeed founded by SIX – may not be the average equity issuer in terms of platform preference, its CFO and senior investment manager Jonathan Seller has his view clear:
“Beyond the clear advantages of managing our share registry and all related processes fully digitally at F10, we believe strongly in the power of collaboration to advance the financial industry,” he said in the stakeholders’ joint press release in July.
The share registry service is provided by Aequitec, “a digital share register and cap table company”, which is an F10 incubator alumnus.
Regulation makes big difference
On the back of relatively permissive regulation, Switzerland, which is not an EU member, seems to have taken a European lead on DLT application in securities. For two years from 2019 to 2021, EU member France was home to the world’s first DLT-based CSD, called ID2S, which specialised in short-term instruments such as NEU CP (negotiable European commercial paper).
In an interview published January 2022, the former ID2S chief Andrea Tranquillini shared his view that the EU’s progress on DLT-based securities issuance was severely hampered by conservative regulation which protects incumbent actors and structures. He put emphasis on the difference between on-ledger trade settlement, on one hand, and settlement where a blockchain transaction would need to be mirrored in a traditional CSD register to gain legal effect, thereby disabling some of the technology’s inherent automation.
A survey made in 2021 by the European Securities and Markets Authority (ESMA) showed that the DLT pickup at the CSDs was mostly on the talk level: “Concerning DLT, while CSDs generally recognise its disruptive potential in the field of CSD services, its deployment is extremely limited at this stage”.