Capital markets News

Securitize makes acquisition to enter secondary market for security tokens

digital asset trading

Yesterday Securitize announced it has agreed to acquire Distributed Technology Markets (DTM) a U.S. firm registered with FINRA as an alternative trading system (ATS) and the SEC as a broker dealer. The combined companies will provide a complete security token solution.

Securitize, backed by Santander Innoventure, NomuraSBI and Sony Financial Ventures, has to date focused on digital asset issuance, investor management and regulatory compliance around digital securities.

In a blog post, CEO Carlos Domingo explained the move. Securitize has had discussions with forty different businesses planning to create marketplaces, but very few have launched. One of them, Open Finance, is struggling and earlier this year, it asked for help from issuers on its platform. Others are building centralized platforms without tokens.

He didn’t say directly that Securitize’s existing business won’t take off until there’s a vibrant secondary market for blockchain-based tokens. Currently, the lack of liquidity has meant some security tokens are trading at discounts to their net asset values.

Domingo noted that private markets raise twice the capital of public markets but are 330x less liquid. And he estimated the liquidity premium as 30%. One of the main benefits of security tokens is to remove frictions and create greater liquidity.

“While we don’t expect private securities to ever trade with the frequency of public securities, we do think there is room for improvement in closing the gap between the annualized trading volumes of private and public securities. The right number is probably somewhere in between existing figures,” Domingo wrote.

He continued: “We faced a conundrum in early 2020. Should we partner with others attempting to solve the liquidity problem or proactively go and try to fix the problem ourselves?” asked Domingo.

Rather than be slowed down by getting regulatory approval, it chose to acquire DTM, a subsidiary of Velocity Markets. Securitize will also buy Velocity Platform, LLC, a money services business with money transmitter licenses in several states. The acquisition needs the green light from regulators and terms were not disclosed, but DTM isn’t profitable or a big company. Its biggest asset is its licenses. At the end of 2019, DTM had net assets of $384,000, down from a million the previous year. According to Crunchbase, Securitize has raised $26.8 million.

Ten months ago, Securitize bought Japanese blockchain consultancy BUIDL. Several of its backers are Japanese and it has also developed a Japanese real estate investment platform with Tokyo listed LIFULL.