Even though blockchain and distributed ledger technology represents a great opportunity to drive more efficiency, inclusion, transparency, and compliance into financial services and capital markets, there’s no easy way for market participants to seamlessly interact with digital securities – even with standardized public blockchain networks like Ethereum running underneath.
At present, there are no single issuers of digital securities listed and trading on more than one exchange or trading system – failing to fully deliver on the promise of better liquidity. More new Alternative Trading Systems (ATS) are coming online with a particular focus in the blockchain-based digital asset space. The industry lacks common standards to connect the new technical infrastructures to traditional securities compliance processes.
As digital securities offerings attempt to expand the market availability by listing on multiple trading venues, is there any assurance any smart contract code generating a digital securities token will be considered compliant by a diverse set of Chief Compliance Officers? Or will venues still require a separate, localized token within their walled gardens under their own control? This presents a quandary for public blockchain networks actually ever becoming the true, single source of truth – even though they represent a common technical layer.
The efforts to connect to the market infrastructure are still enterprise-level development and offering projects at scale. Similar to other large scale enterprise information technology initiatives, the process to understand the technical layers and distinctions in jargon-heavy environments represent significant risk to non-technical offering sponsors. The nexus between the deeply complex technical stack and the similarly complicated world of regulated securities hasn’t fully been reconciled. Offering sponsors who attempt to cut corners with cheap technology like “token generators” risk SEC enforcement.
Few of the feature-based providers in the blockchain space provide solutions for enterprise grade information governance, risk, and compliance (GRC) program solutions. Instead of starting with the law, and then subsequently working backwards into the tech, most blockchain product developers created products and platforms starting with the technology, and has since attempted to back their way into legal compliance. Early legal opinions, or lack thereof, have resulted in many digital asset offering and initial coin offering projects being subjected to review and enforcement by the SEC.
Many service providers in the space force the use of their own proprietary portals and attempt to control investor data and information within their silo. This leads to a disconnect between offering sponsors and investors and a fragmentation of information across many sources – the very antithesis of decentralization and transparency. It also increases the risk for offering sponsors when their offering and investor data is locked into many different 3rd party systems.
10XTS has sought to overcome many of these problems with XDEX and LedgerLab as an offering sponsor-driven Information Governance (IG) and Master Data Management (MDM) solutions for the emerging digital securities industry.
Talk to us about how we can help you ensure a successful technology and data strategy for your digital securities offering >