Request of the SEC
On December 12, Templum issued a formal letter to the SEC, outlining not only the potential impact that blockchain can have on various industries, but recommendations for asset treatment.
What did it entail?
Digital securities as a whole clearly need clarity. However, the request on behalf of Templum focused, primarily, on ‘guidance related to post-trade activities in the digital asset space.’
After listing various examples in detail that require guidance, Templum leaves the SEC with 3 simple points of recommendations. The following points are a directly from their letter:
- Clearly define when a blockchain technology platform must register as a clearing corporation and define how blockchain technology may be used by such firms.
- Provide clear guidance to the industry as to when a blockchain technology platform must register as a transfer agent and provide guidance to issuers of digital assets as to when they must use a transfer agent.
- Modernize the Custody Rule and the Customer Protection Rule to take in to account and encourage the use of blockchain technology’s ability to track securities transactions.
Closing out their request, Templum imparted their positive view on the potential of blockchain. They stated, “We believe that blockchain is a potent modernizing force in financial services. Blockchain has the potential to increase efficiencies in post-trade mechanics and increase auditability, both benefits that would greatly benefit the industry. In order to best take advantage of this potential, the SEC must modernize regulations related to clearance and settlement.”
The full request from Templum can be viewed HERE.
Not the first request
It should be noted that Templum is not the first to request clarity from the SEC. In September, 12 members of Congress implored the SEC to do the same.
This particular request was the result of a meeting in Washington. The meeting involved not only politicians, but individuals from within both the world of crypto, and wall-street.
Might be in vain
Despite the murky waters in which blockchain resides, requests on behalf of the SEC may soon become a moot point.
Recently making headlines has been the push for the re-classification of digital assets on behalf of multiple Senators. This particular charge is led by Congressman, Warren Davidson, who hopes to develop a new set of rules, better suited for modern technology. A far cry from the securities definition created 72 years ago.
SEC – A Brick Wall
Months ago, SEC chairman, Jay Clayton, made it explicitly clear that they would not be changing to definition of securities. At the time, Clayton stated, “We are not going to do any violence to the traditional definition of a security that has worked for a long time…We’ve been doing this a long time, there’s no need to change the definition.”
The SEC has every right to take this stance. However, the requests for guidance from various entities indicates that the SEC has not clearly articulated themselves.
It is baffling that at this point the SEC has not released better clarification on how digital assets are governed.
Templum was founded in 2017, and is based out of New York City. Above all, Templum specializes in offering blockchain services tailored towards digital securities. This includes platforms for both secondary markets and initial fundraising efforts.
In a past interview with Forbes, Templum cofounder, Vincent Molinari, best described what it is that Templum does. He stated, “Templum is a fintech and blockchain holding company that is focused on the modernization of securities law that intersects with the most innovative technologies. Templum will continue to create new market infrastructure in clearance, settlement, custody and transfer of digital assets as securities to create standardization, best practice, and investor protection and will allow large pools of institutional capital to enter the digital frontier market.”
ABACA Partners with CoolBitx on CEZEX
This week saw more exciting developments in the Asian security token sector. CEZEX, Asia’s first licensed security token exchange, announced a strategic partnership with longtime blockchain hardware developers CoolBitx. The partnership strengthens CEZEX’s already pivotal role in the Asian market and demonstrates a desire for more security token integration in the region.
CEZEX is a Philippines-based security token exchange. The platform is unique in that it is the first licensed security token exchange in Asia. The platform is based in the Philippines Cagayan Economic Zone Authority and is the brainchild of the Asian Blockchain and Crypto Association (ABACA).
News of the CEZEX exchange first hit the market in January of this year when the platform’s backers announced plans to expand their operation into Hong Kong by 2020. This move places CEZEX in the ideal location for a security tokens exchange in the region. Hong Kong continues to see growth in their crypto sector ever since China banned most crypto-related activities back in August 2017.
CoolBitx is an industry leader in the region. The firm made headlines way back in 2015 when it became the first company to introduce a Bluetooth cryptocurrency wallet. Since then, CoolBitx continued to expand its services. Today, the company offers a host of blockchain related products and services.
For their part, CoolBitx will handle all security token custodial services for CEZEX. Security tokens differ from utility tokens in that they don’t permit anonymous transactions. Instead, security tokens must follow the strict securities laws already covering the market. CoolBitx will be responsible for verifying and completing tokenized securities exchange transactions. Their responsibilities extend after issuance and into secondary market transactions.
Secondary Market Concerns
While primary regulations are often integrated directly into a security token’s smart contract, secondary market compliance is a hot button issue in the market. Secondary market concerns hit a fevered pitch this week when the DTCC released their fair market practices paper which outlines how to deal with security tokens on the secondary market.
The intervention of the DTCC marks a turning point in tokenized securities. The DTCC handles securities exchanges for the traditional markets. The group handles quadrillions in securities exchanges yearly and their influence in the market can’t be understated. DTCC’s paper argued that security tokens need secondary compliance in order to maintain fair market practices currently in place. This is an argument echoed by many in the industry
ABACA Asian Blockchain and Crypto Association
ABACA continues to see expansion with this latest partnership. The group now includes multiple blockchain industry leaders. One of the group’s most prominent new members is the Taiwan-based Formosa Financial. Speaking on the group’s unprecedented growth, ABACA’s director, Mel Songco explained how the group creates a more “compliant and secure business environment.”
Security Tokens in Asia
Asia has always generated momentum in the cryptomarket. This latest maneuver demonstrates a desire by traditional investment firms to enter the blockchain space. You can expect to see more firms join ABACA in the coming months as the digital economic revolution continues.
Archax Gears up for Launch with Quod Financial
Today, a forth coming digital securities exchange, Archax, has announced a partnership with Quod Financial. This pairing will see Archax turn to Quod Financial for various services, ranging from smart-order routing, trade automation, to order management and more.
These services are made available through integration with Quod Financial’s ‘Adaptive Execution Platform’. Capabilities made possible through this platform will allow for Archax to effectively deliver their product to institutional investors this coming year. If they achieve this goal, Archax will become – with the help of Quod Financial – one of the first offerings of its type seen in the industry.
In their press release, representatives from both companies took the time to elaborate on the development.
“Archax will be the first venue to bring digital asset trading into the mainstream financial community. Existing crypto venues have been primarily retail driven, and so it has been incredibly challenging for our buy-side and sell-side clients to include any form of blockchain-based instruments in their portfolios as they have lacked a regulated and stable venue. Given the rigorous selection process, we are proud to have been selected for this market-changing project to bring both digital assets as well as our data-driven execution intelligence to a wider audience.”
“We wanted to find a best-of-breed partner with an established and proven trading platform used by both the buy-side and sell-side. And one that was ready to handle the complexities of digital assets. Quod’s open, scalable and robust platform fitted the bill perfectly and we are happy to be able to offer it to clients as one of the ways of accessing our exchange…A key decision when evaluating technology providers from the traditional world was to find a platform that could be fully customised to support the new and developing security token space. Quod’s design, using industry standard architecture, allows easier customisation when required. That, coupled with their experience of handling high throughput trading for many tier-one banks and an array of other established regulated clients, made them an ideal partner.”
Quod Financial is an established company specializing in capital markets. Since their launch in 2004, the company has expanded from London to maintaining offices in New York, Paris, Hong Kong, and Dubai.
Company operations are overseen by CEO, Ali Pichvai.
This London based company was founded in 2018 by Graham Rodford, Matthew Pollard, and Andrew Flatt. The company is aiming for a 2019 launch of their platform, designed to act as an exchange for digital securities.
In Other News
Archax, in particular, has found themselves in our news feed various times in past months. They have had an impressive development period, resulting in investments from SPiCE VC among others. Check out the articles below to learn a little more about Archax.
seriesOne to Utilize ST-20 Standard by Polymath
Various companies have made announcements detailing intended usage of token standards lately. As the development of various crowdfunding platforms in the digital securities sector continues, the time has come for many to choose what they feel is the most promising standard. With this in mind, seriesOne has just announced that they have partnered with Polymath.
This partnership will see seriesOne utilize the ST-20 token standard to issue and manage digital securities. The ST-20 protocol is based off of the Ethereum blockchain, and will allow for seriesOne to maintain compliance with global regulations governing the industry.
The Future is ST-20
For seriesOne, it was a simple choice to settle on ST-20. This token standard was one of the first to be developed specifically with digital securities in mind. As such, Polymath has had more time than most to develop, hone, and market their offering. This effort has seen the standard adopted by various companies, with seriesOne being the most recent.
In their press release, the CEOs of each company took the time to express their thoughts on the announced partnership.
“Investors around the world trust Polymath, which was fundamental to our decision to work together…We are confident that working with the Polymath team using the ST-20 protocol will enhance the process of raising capital on our platform.”
“Polymath is proud to work with innovative partners like seriesOne, who has fulfilled a specific demand for a turnkey financing portal for any fundraising process…We are thrilled to be the chosen technology standard for the seriesOne platform, and we look forward to demonstrating yet again how industry can work together to set a standard for creating and managing a successful Security Token Offering (STO).”
seriesOne is a crowdfunding platform, which specializes in the issuance, distribution, and management of digital securities. Through their platform, issuers are able to effectively, and efficiently, host security token offerings. The company is based out of Miami, and was founded in 2013.
Polymath is a Canadian company, which maintains headquarters in Toronto. The company was established in 2017, and is spearheaded by CEO, Kevin North.
To date, Polymath and their token standards remain one of the most adopted solutions in the young world of digital securities. Their own utility token is available for trading on various industry leading cryptocurrency exchanges such as Poloniex and Bittrex.
In Other News
Each of these companies discussed here today have found their way into our headlines in recent months. For a look at what they have been up to recently, make sure to check out the few articles listed below!
- The Application of Broker-Dealer and Exchange Regulations to Secondary Markets – Thought Leaders March 21, 2019
- ABACA Partners with CoolBitx on CEZEX March 21, 2019
- Equity Tokens vs Security Tokens March 20, 2019
- Archax Gears up for Launch with Quod Financial March 20, 2019
- seriesOne to Utilize ST-20 Standard by Polymath March 20, 2019