A blockchain-inspired trading infrastructure, which links banks, companies and investors to cryptocurrencies and a new breed of digital securities, is nearing fruition in Switzerland.
On Monday, the Swiss financial regulator gave the green light for the TDX Digital eXchange by awarding a securities house licence to technology company Taurus.
The Geneva-based fintech says it will launch its platform on May 10. Arab Bank Switzerland, Hypothekarbank Lenzburg, FlowBank and SEBA are the first to join the network.
This year, Switzerland reformed its legislation to incorporate digital-only assets into its legal framework. This has allowed firms like Taurus to launch platforms that provide the technology that underpin this new form of trading.
Blockchain, and other distributed ledger technology (DLT) systems, promise a faster, more cost-effective way of trading securities. Taurus says this will open the doors to smaller companies raising capital and for the creation of a range of newly tradeable assets. “It should be as easy to buy and transfer private asset securities as it is to buy a book on Amazon,” Taurus co-founder Lamine Brahimi told SWI swissinfo.ch.
Taurus’s TDX platform is wired up to process smart contracts on the Ethereum and Tezos blockchains. Smart contracts are coded instructions that automate processes that are performed manually with the trading of traditional securities.
The news follows the launch last year of the SygnEx trading platform by Sygnum bank. The operator of the Swiss stock exchange, SIX Group, is awaiting approval for its anticipated SDX Digital Exchange. Other blockchain companies, including Lykke, also have ambitions of adding their own trading venues. This includes technology firm Forctis, which is hoping to launch its be.fluid platform in the coming weeks.
A range of other countries, from Germany, Thailand, Japan, Singapore and the United States, are also building - or have introduced - digital assets trading venues.
TDX, which describes itself as a digital asset marketplace, is not classified as a stock exchange and will not compete directly with SIX Group’s SDX exchange. But such “organised trading facilities” still promise to create a more diverse network than the traditional trading system currently dominated by SIX.
“Mass trading of securities is now possible, independently of any custodians and central depositories of securities,” said Taurus in a statement. “There are nearly 27 million companies in Europe out of which only 10,000 (0.04%) are listed on stock exchanges. Provided they pass the required due-diligence process, private asset issuers will be able to admit securities for trading and unlock liquidity for existing and prospective investors.”
In addition to company shares, other digital assets, such as real estate, art and luxury goods could be turned into digital assets on the platform. But despite the promise of unlocking financial services for smaller players and reducing fees, the digital assets sector has yet to deliver at scale as it waited for regulators and the trading infrastructure to play catch-up.
Unlike Sygnum’s SygnEx platform, TDX has no plans to issue its own digital currency - or “stablecoin” - to perform instant payments on trades. Brahimi said TDX could incorporate other stablecoins, such as that being developed by the Geneva-based Diem Association (formerly known as Libra).
The company said it also plans to expand its operations into Europe and Asia.
How digital assets work
Digital-only versions of company shares, financial instruments and even objects, such as art or wine, are created by a process known as tokenisation.
Tokens confer ownership rights to the holder. They are embedded with coding known as smart contracts that automatically fulfil many of the manual processes in today’s trading.
Blockchains, or other DLT systems, act as digital ledgers, tracking ownership of tokens. The system allows tokens to be traded peer-to-peer without the need of intermediaries.
This is currently being exploited by artists, some of whom are making large sums of money by selling so-called “non-fungible tokens” (NFTs) of their artworks.End of insertion
In compliance with the JTI standards