Today Securitize launched its secondary market trading venue for security tokens, Securitize Markets, almost a year after acquiring DTM, the FINRA registered alternative trading system (ATS) and SEC-registered broker-dealer. The delay is likely in part owing to regulatory approval.
Securitize has attracted numerous big name backers, including Santander, Nomura, MUFG, SBI, and Sony Financial Ventures. Blockchain Capital and Morgan Stanley Tactical Value co-led its $48 million Series B fundraising in June.
The digital assets company started by providing a compliance platform to enable stocks or other assets such as real estate or funds to be transformed into tokenized securities. It sounds simple enough. However, with private stocks there are often restrictions about to whom the stock can be transferred. The solution supports compliance classifications such as whether an investor is considered accredited.
Security tokens promise to transform multiple markets such as private stocks, bonds and real estate by opening them up to a broader investment pool. Issuance costs are lower and trading tokens enables near instant settlement, removes counterparty risk and reduces post-trade processes.
However, private stocks are notoriously illiquid, and turning them into tokens doesn’t magically add liquidity. That’s especially the case because many security tokens issued to date are not listed on high profile marketplaces. That’s a key issue that Securitize’s secondary market launch aims to address.
Securitize points to companies staying private for far longer than in the past.
“The focus on IPOs is misplaced. Today, wealth is generated by investing in early-stage companies, not mature ones. But most investors have been frozen out of these opportunities, until now. Securitize Markets is intended to give many more investors access to alternative investment opportunities, with an aim at increasing the liquidity of the private markets overall,” said Carlos Domingo, CEO of parent, Securitize.
This is very true, but in many cases, private stocks have restrictions regarding the investors’ net worth.
“Securitize Markets is the final critical component in creating the world’s largest, fully digital, end-to-end, regulatory compliant solution for raising and trading private capital,” said Domingo.
The company claims that instead of spending lots of time raising money from venture capitalists, CEOs can issue stocks that customers, fans and partners will buy. However, in many cases the stocks are likely to be limited to wealthier investors.
Security tokens look promising in a number of markets. In terms of stocks, some private firms have already achieved scale and will attract large numbers of investors if they offer security tokens. Many others are less obvious. For every pre-IPO Facebook or Coinbase, hundreds or thousands of companies will either fail, plod along, or have moderate success.