Partnering for Liquidity
Earlier today, Archax and HighCastle announced a newly established partnership. Between the two companies, they offer services entailing the trading of digital securities, blockchain based registrar, onboarding platforms, and more.
The pairing of companies indicate that this move was undertaken in an attempt to provide high levels of liquidity for digital securities issued through PrimeNet.
Upon announcing their partnership, representatives from each, HighCastle and Archax, took the time to comment. The following is what each had to say on the matter.
Philip Millar, Executive Director of HighCastle, stated,
“At HighCastle we provide companies and funds with a full technical and legal framework for compliant digital offering, issuance, distribution and transfers of securities on a distributed ledger and the opportunity to maintain a blockchain-based share register. By integrating with the Archax exchange, HighCastle will provide our issuers and their shareholders with the additional channel of trading and liquidity.”
Graham Rodford, CEO of Archax, stated,
“The tokenisation of all asset classes globally will not only facilitate bringing liquidity to currently illiquid and hard to trade assets, but ultimately will disrupt all traditional financial markets too. Blockchain brings huge benefits in terms of the improved efficiencies and the difference it will make to the post-trade process will be truly transformational. HighCastle, with its focus on the issuance, distribution and management of digital securities, is perfectly placed to bring the benefits of blockchain to SME firms and funds, and we look forward to working with them as this exciting tokenisation ecosystem gathers momentum.”
Speaking with Graham
We were recently fortunate to have had the opportunity to complete an exclusive interview with Archax CEO, Graham Rodford. In this conversation we learn about, not only Archax, but digital securities overall.
Founded in 2018, Archax maintains headquarters in London, England. The team at Archax has been ramping up operations as they prepare for an expected launch of their digital securities exchange in late 2019.
CEO, Graham Rodford, currently oversees company operations.
Founded in 2016, Highcastle maintains headquarters in London, England. In the time since their conception, HighCastle has developed a variety of specialized services, meant to facilitate digital securities.
CEO, Philip Millar, currently oversees company operations.
In Other News
With Archax being one of the more anticipated digital securities exchanges, it should come as no surprise that we have covered them various times here at securities.io. The following are a few articles taking a closer look at Archax, and a few of their other established partnerships.
Hirander Misra, Chairman of GMEX Group & Chairman of SECDEX – Interview Series
Hirander Misra is the Chairman and CEO of GMEX Group (GMEX), offering innovative solutions for the creation & operation of electronic exchanges and post trade infrastructure in securities, FX, derivatives, commodities, crypto & digital assets.
Can you start by sharing what GMEX Group is?
GMEX Group (“GMEX”) is a global provider of innovative multi-asset exchange trading and post trade business solutions and technology ecosystems. As a market infrastructure vendor, we focus on technology and interconnectivity. Our solutions address the end to end regulatory and contract environment needs for issuance, trading, clearing and settlement of securities across exchanges, across all asset classes including traditional, alternative and digital assets, digital currencies as well as hybrid digital securitisation of traditional assets including derivatives.
GMEX’s focus is on digitally transforming global financial markets, enabling participants to launch new solutions, expand current operations and scale to meet market demands. We carry this out using two proven engagement mechanisms to enable our clients to use technology to achieve their commercial goals:
- Market Advancement Programme (MAP), which delivers multi-asset Exchange and Post-trade enablement with an optimal combination of traditional and digital market infrastructure technology and services
- Partnership-driven Approach, we do not just sell technology, rather we use a combination of FinTech, business and investment solutions empowering partnerships and ventures.
What sparked your interest initially in launching GMEX?
When we started out in 2012, the existing market infrastructure vendors were very much of the customer-supplier mindset, providing legacy technology at inflated prices without taking into account the real business and operational needs, including any commercial constraints which may exist. This was our opportunity to differentiate ourselves!
We provide business expertise, the latest technology, connectivity & operational expertise delivered through an aligned partnership driven approach for exchanges, trading venues, clearing houses, depositories, registries and warehouse receipt platforms. In many cases this also allows us to align interests by taking equity in the ventures we are working with, as and where such opportunities make sense.
In 2016 we were able to capitalise on the opportunities that blockchain presented, initially on provenance of commodities and subsequently within capital markets. We were surprised at how most projects just harnessed the technology in the same way that traditional technology was being used and thought, what is the point? That spurred us on to look at ways in which the technology could be leveraged to revolutionise and democratise the way capital markets and marketplaces for other asset classes operated.
Can you tell us about GMEX Investments, and what type of investments are made?
The investment focus for GMEX is early stage equity and token strategic investment in market infrastructure and related FinTech companies, which are synergistic with what GMEX does in terms of servicing and product capabilities. In addition, we also venture build our own initiatives.
Given the interesting pre Series-A FinTech opportunities we are coming across, we have also launched Digital Investment Fund PCC (“DIF”) in the Seychelles, which is the is the world’s first fully regulated tokenised hybrid fund. We have an interest in companies, which have genuine intellectual property in the blockchain and artificial Intelligence (“AI”) space within financial services, combined with early client traction.
Can you elaborate on the digital exchange trading and post trade technology offered by GMEX Technologies?
GMEX offers the first truly hybrid exchange and post trade ecosystem, Fusion, bridging the gap between traditional and digital assets underpinned by regulatory frameworks. This is quite analogous to interconnected telecommunications networks. We ensure our solutions are aligned with the business objectives of our clients and partners. GMEX Fusion is a hybrid centralised & blockchain distributed ledger technology suite and middleware, which is deployed and trusted by multiple international regulated financial institutions around the globe. The suite includes:
- ForumPortal, a tokenisation, registration and issuance platform;
- Forum Trader, a secondary trading front-end and order management system;
- ForumMatch, a high-performance exchange trading platform with integral matching engine;
- ForumDetect, a market surveillance system;
- ForumIndex, an index calculation and dissemination system;
- ForumCustody, a digital custody platform for clearing and settlement;
- ForumWallet, a wallet management platform, which can also interface with third party wallets;
- ForumCCP, a clearing platform facilitating credit checking, position keep and margining;
- ForumCSD, a central securities depository and registry platform facilitating settlement;
- ForumPay, a simple and secure platform for making international payments, money transfer, withdrawals and deposits across multiple financial instruments.
Why are cryptocurrency exchanges attracted to using GMEX?
Cryptocurrency and digital assets exchanges are attracted to using GMEX because they appreciate we have genuine proven solutions and a practical understanding of digital assets as opposed to the hype and vapourware that some are touting out in the market.
They like the fact that the technology stack is designed for the needs and quirks of cryptocurrency and digital asset markets, which can include 24 hour trading, 18 decimal places due to fractional ownership, high volume requirements and the need to offer tokenisation and digital custody services beyond just exchange solutions.
Importantly, as markets in this space become increasingly regulated, GMEX is able to support our clients with our regulatory and business expertise in operating markets across the globe, which is highly valued.
How scalable is GMEX technology?
Cryptocurrency and other types of digital asset exchanges are facing a very serious challenge with the increasing volumes of orders they need to cope with. Investors and speculators expect their orders to be executed within a few milliseconds especially in hectic market conditions i.e. when volumes are at their highest peak. Any slowness in order execution will cause loss of confidence and order flows to switch to other venues. Exchanges must ensure their technology can stay ahead of the fierce competition. Recent volatile cryptocurrency market conditions were a performance wake-up call for cryptocurrency exchanges.
Our technology stack is modular and component based and is designed to flexibly support multiple assets and numerous private and public blockchains. It also has the ability to easily interconnect many nodes, whether they are running our technology or are third party platforms. Our low-latency and high-throughput exchange solutions combined with high availability ensure successful operation in critical market infrastructure environments. Superior performance is also achieved by way of a low hardware footprint. We also include appropriate open source components to remove third party licence fees. The technology stack scales through use of virtualisation and cloud services, as an alternative to local deployment, where there is a need for a turnkey Software-as-a-Service (“SaaS”) model to be offered as an option.
You are also Chairman of the SECDEX, the Seychelles based Securities, Commodities and Derivatives Exchange. Could you tell us about the SECDEX and why it matters?
The SECDEX Group business consists of a regulated:
- Central counterparty clearing house (CCP);
- Central securities depository with registry;
- Digital marketplace; and
- Digital custodian.
SECDEX is unique as it is the first fully-regulated, multi-asset, hybrid market infrastructure ecosystem combining the benefits of a digital exchange with those of a traditional exchange to deliver seamless trading, clearing and settlement. It is based on the strengths of GMEX Group as a founding shareholder combined with the professional services of Digital Partners Network (DPN) as a co-founding shareholder. DPN services include specialist legal, finance, compliance, corporate structuring, finance, strategic consulting, technology-enabled digital transformation and potential investment through a digital fund.
This is game changing, as until now there have been too many intermediaries for these different services, and they have not been offered cost-effectively under a single umbrella. This means that in addition to the listing of traditional securities and derivatives, Security Token Offerings (STOs) can be undertaken in a regulated, trusted environment with issuance, full professional services support for the tokenisation process covering legal and valuations in addition to capital raising, with listing and secondary trading on the SECDEX Exchange.
It was also recently announced that the SECDEX group has welcomed a new addition to their ranks – SECDEX Digital Custodian (SDC). Could you tell us about this digital custodian solution?
SECDEX Digital Custodian Limited (SDC) is a regulated digital custodian offering cold storage and custodial services for cryptocurrencies, security tokens and other digital assets. SDC caters to retail, high net worth (HNW) and institutional users including exchanges, marketplaces, brokers, banks, payment service providers and traditional custodians.
SDC services include:
- Safeguarding of digital assets
- Transaction recording and reporting for its users
- Automated transfers, balance confirmations and account related requests
- Escrow services
- A multi-signature authorisation protocol to ensure that no single party is able to initiate and complete a transaction within its custody. Furthermore, under its technological platform operated by the venue, each key is held with segregated accounts.
SDC, in a short space of time, has already attracted USD 544,718,948 of assets which it has tokenised with immutability and transparency on the Ethereum blockchain.
One of your other projects is promoting Blockchain solutions to drive financial inclusion across Africa. Could you share some of your views regarding this?
There are an estimated 700 million unbanked farmers in sub-Saharan Africa and every country has its own structures and complexities. At the heart of the problem is the lack of price transparency for farmers for their produce. Better prices would mean improved income, allowing them to better afford seeds, pesticides, fertilisers and even opening up credit.
FinComEco, the financial and commodities ecosystem, links agriculture to the latest financial technology down to the individual smallholder farmer level and beyond from origination to destination. This is achieved via a model which is adaptable to local requirements with an underlying ecosystem of technology, finance, exchanges, logistics, sourcing and supply chain infrastructure. Its aims are to:
- Facilitate financial inclusion with social impact for smallholder farmers;
- Bank the unbanked through facilitation of finance;
- Facilitate cheaper inputs and access to warehouses; and
- Provide commercial farmers better access to markets.
Is there anything else that you would like to share regarding either GMEX or SECDEX?
GMEX has collected feedback about digital asset deployments from securities exchanges who are
- Conscious of the importance to offer digital assets for trading
- Concerned by new technology investments
- Uneasy with the Blockchain/DLT technology due to a few scandals and scams
- Reluctant because of unknown legal and administrative implications
GMEX, DPN and SECDEX have responded by combining their strengths in a single value proposition with a multitude of technology, regulatory and services options to enhance the knowledge and associated business opportunities available to traditional securities exchanges.
With a growing number of jurisdictions recognising security token equivalence to traditional securities, it is now evident that exchange operators should embrace the transition to digital or, more appropriately, a hybrid integrated approach. Traditional exchanges, whether incumbent or challenger, are now acting under similar regulatory frameworks and are on the same level playing field with regard to digital assets. Early movers are taking advantage of this new territory. However, given the pace of change and anticipated exponential growth of the digital economy, firms should see this as a catalyst to re-engineer their objectives, processes, and strategies rather than just replace like for like. It is vital to act now to leverage this opportunity and to be part of the paradigm shift into this new era of digital exchanges and post trade, which ultimately can benefit investors, SMEs and the wider capital markets.
Thank you for the great interview answers. Readers who wish to learn more should visit:
GMEX Group (GMEX), offering innovative solutions for the creation & operation of electronic exchanges and post trade infrastructure in securities, FX, derivatives, commodities, crypto & digital tokenised assets.
SECDEX, the Seychelles based Securities, Commodities and Derivatives Exchange, which is a full ecosystem for digital and traditional assets enabled by blockchain technology.
Fusang Clients to Benefit from Securitize ‘Tool Shed’
This development will see Fusang gain access to the comprehensive suite of services developed by Securitize for the digital a securities sector.
It is unsurprising that Fusang has turned to Securitize, as the latter was directly responsible for tokenizing equity for Fusang, themselves.
To date, the suite of services developed, and offered, by Securitize is extensive. By gaining access to them, Fusang will be able to offer their clients a wide variety of capabilities. The following is just a small example of what Securitize, and now Fusang, have to offer.
- Investor onboarding
- KYC/AML Services
- Support for various blockchains
- Cap-table monitoring
- Payment gateways
- Atomic Swaps
By providing access to their services, Securitize stands to benefit greatly, as well. Not only will Fusang be able to recommend them to clients, but Securitize will see their presence, and influence, in Asia grow.
Upon announcing this new partnership, representatives from each, Fusang and Securitize, took the time to comment.
Henry Chong, CEO of Fusang, stated,
“As Asia’s first fully-licensed digital stock exchange we are excited to fulfill the long-standing promise of security tokens. The ability to digitise securities not only allows for them to be traded quicker, cheaper, and more easily, but also allows for companies to rethink the value networks they create and what it means to be a shareholder. The future of securities is digital, and we have proven this through issuing our own digital equity.”
Carlos Domingo, CEO of Securitize, stated,
“We are very excited about our partnership with Fusang. Not only will the partnership help to promote digital securities adoption in Asia, but it will also give both companies more ability and opportunity to supply issuers in Asia with industry-leading technology and services.”
Roughly one year ago, Fusang became the first company in Asia to receive licensure for operating a securities exchange. After a year of growth, this licensure is about to come in handy, as partnering with Securitize will, hopefully, result in a flexible, and popular, platform.
The continent of Asia represents an area rife with potential. Securitize has clearly recognized this, and despite being based in the U.S., have made a concerted effort over the last year to increase their ties to the East.
This has manifested in, not only multiple investments from companies, such as Sony, but through the acquisition of promising start-ups. The following articles highlight a few of these instances.
Founded in 2015, Fusang is headquartered in Hong Kong. Through licensure attained in Malaysia, Fusang is notably the first Asian company able to operate as a securities exchange.
CEO, Henry Chong, currently oversees company operations.
Founded in 2017, Securitize is a U.S. based company. Above all, Securitize works to serve the digital securities sector, through a comprehensive suite of services. Through various investments and acquisitions, Securitize has managed to establish themselves as a market leader.
CEO, Carlos Domingo, currently oversees company operations.
OSC Finds Extensive Evidence of Fraud/Theft by Gerald Cotten and QuadrigaCX
Over a year has passed since the demise of popular Canadian exchange, QuadrigaCX. Despite this length of time, new findings are still being released surrounding the peculiar chain of events that saw $215 million go missing – a total representing the holdings of over 75,000 clients.
While the actions of Gerald Cotten and QuadrigaCX are, without doubt, a blight on the cryptocurrency industry, it is important to remember the old adage ‘do not paint with a broad brush’.
The OSC has, thankfully, recognized this, and taken the time to ensure readers that they are not condemning the sector as a whole, in their report.
“The misconduct we uncovered in relation to Quadriga is limited to Quadriga and should not be understood as applying to the crypto asset platform industry as a whole. Properly conducted, crypto asset trading is a legitimate and important component of our capital markets. We remain committed to working with this industry to foster innovation. Financial innovation has always been critical to the health of our economy and the competitiveness of our capital markets.”
Now we move on to the bad. After a thorough investigation, the OSC has determined that QuadrigaCX operated, essentially, as a Ponzi scheme underneath a ‘layer of modern tech’. This Ponzi scheme is believed to be orchestrated by the late founder of QuadrigaCX, Gerald Cotten.
Furthermore, due to the custody model utilized by the exchange, the OSC believes QuadrigaCX to have been in consistent violation of securities laws.
“…whereby Quadriga retained custody, control and possession of its clients’ crypto assets and only delivered assets to clients following a withdrawal request—meant that clients’ entitlements to the crypto assets held by Quadriga constituted securities or derivatives.”
To this day, many of those affected by the debacle caused by Cotten have remained hopeful that the lost keys to his crypto wallets would be found. This was due to a belief that these wallets contained much of the missing funds. Unfortunately, the OSC has indicated that this is a fallacy. Rather, the vast majority of missing funds were due to Cotten’s illegal trading activity.
“It has been widely speculated that the bulk of investor losses resulted from crypto assets becoming lost or inaccessible as a result of Cotten’s death. In our assessment, this was not the case. The evidence demonstrates that most of the $169 million asset shortfall resulted from Cotten’s fraudulent conduct, which took several forms.”
If that wasn’t bad enough, the OSC concedes that, due to the circumstances (QuadrigaCX bankruptcy, and Cotten’s death), there exists very little room for recourse.
In their report, the OSC notes that roughly $215 million is owed to QuadrigaCX customers. They provide the following breakdown, shedding light on where the money has gone.
- $115 million
- Lost by Gerald Cotten through illegal trades on QuadrigaCX
- $46 million
- Recovered funds, now in the possession of a trustee
- $28 million
- Lost by Gerald Cotten through illegal trades on external exchanges
- $23 million
- Miscellaneous losses yet to be accounted for
- $2 million
- Funds stolen by Gerald Cotten to fund his lifestyle
- $1 million
- Operational losses
Whether through misappropriation, or illegal trades, the late Gerald Cotten is believed to be directly responsible for roughly $145 million lost in client funds.
Words of Warning
Throughout their report, the OSC doesn’t mince words when addressing companies still operating in the blockchain industry – Contact the OSC to see if registration is required under current laws.
They explicitly note, on multiple occasions, that securities laws apply in many instances, even when the traded assets are not securities. The deciding factor comes down to how these assets are handled by exchanges.
“A platform would generally not be subject to securities legislation if the underlying crypto asset being traded is not a security or derivative, and there is immediate delivery of a crypto asset to the client after a transaction…In contrast, if a platform retains possession and control of the crypto assets being traded on the platform, securities law may apply.”
While this distinction may be small, it is an important one. The OSC is imploring Canadian exchanges to reach out and determine where they fall within regulatory guidelines.
“Platform operators should be aware that, depending on their business model, they may have to register with the OSC and they should take appropriate steps to comply with Ontario securities laws…Platforms should review their operations to ensure that they have procedures in place to manage risks to clients and that they are accurately disclosing key information about their operations to clients.”
The Ontario Securities Commission (OSC), is a regulatory body, tasked with ensuring fair and transparent markets. This is done through the creation, and enforcement, of laws surrounding securities in the province of Ontario.
CEO, Grant Vingoe, currently oversees company operations.