Our weekly list of announcements about how capital markets participants and regulators are engaging with digital assets.
Credit Suisse, SocGen to use Paxos blockchain settlement for US equities
Paxos Trust Company, a New York-regulated financial institution that digitizes and mobilizes assets, announced it received No-Action relief from the staff of the US Securities and Exchange Commission (SEC) to introduce Paxos Settlement Service. Following the No-Action letter, the blockchain settlement platform will soon begin processing transactions for a limited number of broker-dealers for certain listed US equity securities.
Credit Suisse and Société Générale will be the first in a group of early adopters to use Paxos Settlement Service, settling US equities outside the legacy infrastructure for the first time in nearly half a century. The solution will help clients achieve meaningful reductions in fees and gain access to capital otherwise trapped in the legacy settlement system.
Paxos Settlement Service is a private, permissioned blockchain solution designed to allow two parties to bilaterally settle securities trades directly with each other. The platform, which will be the first live application of blockchain technology for US equities, enables settlement of securities trades more cost-effectively and securely than the legacy system. It allows for the simultaneous exchange of cash and securities to settle trades and is backward-compatible with current processes, simplifying integration.
Emmanuel Aidoo, head of Digital Asset Markets at Credit Suisse, said in a statement, “We believe the process of securities settlement can be greatly optimized using blockchain, and with Paxos Settlement Service we will benefit from these efficiencies first hand. We see this as a significant and important milestone in our Digital Asset Markets strategy and foresee opportunities to leverage this product across numerous asset classes in the future.”
Jeffrey Rosen, COO, Americas Global Markets at Société Générale, said in a statement, “By implementing Paxos Settlement Service as an early adopter, we will be able to tailor the system to our needs and introduce a technology that can positively impact our cost structure in both the immediate and long-term. This service has the ability to deliver meaningful benefits to our operations and business and we are excited to be on board.”
Charles Cascarilla, CEO and co-founder of Paxos, said in a statement, “We look forward to working with our early adopter partners to further develop the ecosystem. Together, we’ll create financial benefits and achieve operational efficiencies with blockchain technology that will facilitate an open financial system. We’re starting with U.S. listed equities, but this technology can be scaled to many asset classes across geographies and for all types of clients.”
Koine secures FCA EMI authorization
Koine was granted authorisation for the issuance of electronic money (EMI Licence) by the Financial Conduct Authority (FCA). Founded in 2017, Koine offers segregated, institutional custody and settlement of digital assets.
The EMI authorization allows for Koine to provide real-time e-Money payment services to institutional clients, however, its custody and settlement model for digital assets is outside of scope. The model eliminates settlement and counterparty risks by enforcing DVP, while ensuring clients at all times retain beneficial ownership of their assets throughout the trade lifecycle.
With more than 40 institutions, funds and family offices onboarded, Koine represents the culmination of two years’ governance, legal and technical programmes to create an infrastructure suitable for institutional capital. It has engineered a solution that sets itself apart from the current hot wallet/cold store model with manual transfers, providing heightened security of assets, with instant settlements and withdrawals.
Leading the Koine team as CEO and chair is Hugh Hughes, ex-CEO of Société Générale Securities and co-founder of Fixnetix. In a statement, Hughes said: “The FCA’s recognition of the controls and processes that we have put in place for our EMI authorization, notwithstanding their concerns regarding the digital markets, shows that London can continue to attract financial institutions in the digital markets, alongside traditional capital markets, as long as those institutions can show that they have appropriate governance to address the regulator’s requirements.”
While the firm selected the UK as its jurisdiction of preference to begin authorization, it is also in the process of applying in other major financial services locations.
Survey: consumer-ready digital currency will be launched within five years
Policy-makers at a number of central banks around the world are seriously considering developing and issuing a central bank digital currency, with a consumer-ready CBDC likely to arrive in the next five years. That is the key finding from a report from IBM and OMFIF, a central banking think tank, which conducted a survey between July-September 2019, involving central banks from 13 advanced economies and 10 emerging markets.
The report, commissioned by IBM, encompasses an in-depth survey of officials from 23 central banks in advanced and emerging economies. The findings present a holistic picture of policy-makers’ approaches to setting up a retail CBDC. The survey projects that the first CBDC will be produced within five years in a small economy and respond to a specific policy objective with a well-defined use.
A consumer-ready CBDC is likely to require some form of public-private partnership. Central banks are hampered in their ability to offer financial services, and private companies will probably fill the gap. Plans to issue proprietary digital global currencies is the most recent and conspicuous manifestation.
Without regulation, private sector digital currencies could possibly undermine central banks’ monetary sovereignty and threaten financial stability. Central banking policy-makers and regulators increasingly acknowledge that understanding and, where appropriate, incorporating these technologies into their own functions may have to be an essential part of their mandate.
Key findings:
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- In dealing with digital currencies, policy objectives will remain central bankers’ pre-eminent concern; advances in technology alone will not determine how CBDCs are designed or whether they will be introduced.
- 73% of central bank survey respondents would require retail CBDCs to be available under all circumstances and for all types of payments where cash is currently used.
- More than half of respondents said they were very concerned about the possibility that private challengers like Libra would critically undermine monetary sovereignty.
- 82% of those responding said their greatest financial stability concern from CBDC implementation was the risk of digital bank ‘runs’ which could damage stability and confidence.
- 64% of respondents said outsourceable ‘intermediation’ functions, such as customer onboarding, would be important for CBDC implementation.
Saket Sinha, global vice president, IBM Blockchain Financial Services, said in a statement: “Large banks and technology companies will have a major role to play as new public private partnerships are formed to promote interoperability, create services, and extend financial inclusion.”
Reuters: China passes cryptography law as gears up for digital currency
China’s largely rubber-stamp parliament has passed a new law on cryptography as the country gears up to launch its own digital currency, state media reported. The law, which takes effect on Jan. 1, is aimed at “facilitating the development of the cryptography business and ensuring the security of cyberspace and information”, the official Xinhua news agency said, citing parliament.
The law states that the state encourages and supports the research and application of science and technology in cryptography and ensures confidentiality. Chinese President Xi Jinping said last week that the country should accelerate the development of blockchain technology as a core for innovation.
The Block: Bakkt stats in first month of bitcoin futures trading
Cryptocurrency derivatives exchange Bakkt has witnessed a jump in the trading volume of its physically-settled monthly bitcoin futures as its price crashed in the last week of October, with peak volume hitting $4.81 million. This is more than the total volume over the nine previous trading days combined.
The total volume of Bakkt’s monthly bitcoin futures now stands at $20.22 million since its launch on Sept. 23. It means the average volume has been ~$0.88 million a day over the last 23 trading days.
Thai securities regulator approves Seamico to operate ICO portal
Seamico Securities has been approved by the Securities and Exchange Commission (SEC) to operate as an ICO (initial coin offering) portal and, after demonstrating the operational readiness of the platform, has been given the green light to initiate business, the company informed the Stock Exchange of Thailand in a letter.
OSC approves TokenGX for secondary trading of digital securities
TokenGX has received approval from the Ontario Securities Commission (OSC) for pilot testing a secondary trading marketplace of digital securities. The regulator granted exemptive relief for TokenGX to launch and operate FreedomX, a secondary trading marketplace for security tokens issued by Issuers on its affiliate’s, TokenFunder, bespoke blockchain platform.
The security token issuance platform has an investor onboarding and investing experience for retail and accredited investors. With digital shares recorded on a public blockchain, Ethereum, costs of capital for Issuers are expected to be reduced compared to traditional platforms.
TokenFunder provides Canada’s security token issuance platform and investing experience designed for all investors. Its affiliate, TokenGX, is Canada’s first security token exempt market dealer. TokenGX provides high-potential startups, scaleups and mature businesses with proprietary technology and a clear regulatory path to execute Security Token Offerings (STOs) to raise capital and provide liquidity for their investors.