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less familiar to traditional investors, suddenly secu-
rity token offerings (STOs) have become the latest
revelation born out of the cryptocurrency world.
“The numerous benefits for tokenising assets
on DLT are generally speeding-up transaction
times, improving transparency, streamlining
business processes, and reducing costs.”
MICHAEL TAE, CORPORATE VICE PRESIDENT, CORPORATE
STRATEGY, BROADRIDGE FINANCIAL SOLUTIONS
Unlike ICOs, these security offerings are tied to
something with intrinsic value, something easy to
explain to an institutional investor, and also a regu-
lator. Like their ICO counterpart, it’s still a process
of producing a token through a public offering to
enable funding, but more akin to the real world of
purchasing a share as its backed by a ‘real-world’
asset while it can also carry voting rights, decision
making, or even dividends.
“STOs hit that sweet spot in the middle, they
make the market more efficient and it means there
are less middle men,” explains Hirander Misra,
CEO of GMEX. “You’re creating asset packages
with different STOs: think of it as an ETF backed
by assets, you create a NAV on the fund on the value
of those assets that are underlying. Equity-related
STOs are one component, the other is gold, the
other is stablecoins. Based on high-risk, low-risk,
medium-risk you can package them accordingly.
You get a diversity of assets.
“Family offices aren’t FinTech guys, they don’t
know the difference between good and bad ICO.
They do understand equity and value…when you
talk about the merits of STOs and link it back to pri-
vate equity for example, you are talking a language
they are understanding.”
Evidently one of the major benefits is being able
to mobilise assets that have been traditionally
difficult or complicated to move, with some of the
aforementioned new asset classes exemplifying
this.
Solving collateral mobility
A consortium of banks, custodians and market
infrastructure providers are also looking at apply-
ing tokenisation to collateral, to solve some of the
widespread costs of collateral mobility.
The system using tokenisation to reduce eye-wa-
26
Global Custodian
Winter 2018
tering costs of moving high quality liquid assets
(HQLA) could even be ready at the start of 2019.
HQLAx is a securities lending platform us-
ing R3’s blockchain technology, supported by
Deutsche Boerse’s Clearstream and six banks
including Goldman Sachs, Credit Suisse and ING.
The initiative allows collateral to stay fixed with
the legal entitlement moving and being held for
safekeeping by a custodian.
Following a successful securities lending transac-
tion on the platform at the start of March between
Credit Suisse and ING, HQLAx is now looking
ahead to the future with sights on receiving clients
on the platform at the start of 2019, with actual use
of the service likely taking place early next year.
Mobilising high quality liquid assets has become
a huge burden and cost for the securities services
industry, but those involved in HQLAx believe
“Family offices aren’t FinTech guys …when
you talk about the merits of STOs and link it
back to private equity for example, you are
talking a language they are understanding.”
HIRANDER MISRA, CEO, GMEX
that by creating a token so that the securities don’t
physically move themselves will solve widespread
problems, along with creating a tradable new asset
class.
Speaking to Global Custodian on the side-lines
of Sibos 2018 in Sydney, Philippe Seyll, co-CEO
of Clearstream Banking, explained the taking-off
point for the platform will be to onboard a major
player with tri-party capabilities.
“There has to be more than one custodian with a
tri-party capability operating on HQLAx. We are in
advanced discussions with two global custodians
of potentially onboarding them onto the platform,”
said Seyll.
“We are planning to be ready with HQLAx by the
end of the year, and could see the first live transac-
tion between a global custodian take place in the
first quarter of next year.”
What place Bitcoin and cryptocurrencies have in
the financial markets of the future is uncertain, but
the underlying blockchain technology is ushering
in a new era for the capital markets. Custodians are
readying themselves for this wave of tokenisation
in a sign that this could be the future, and one they
want to be a part of.