Capital markets Feature News

Now it’s live, what’s next for SDX?

six digital exchange sdx


  • SDX explores Europe, UK
  • Plans to tokenize Euro commercial bank money
  • Looking to onboard security token issuance platforms
  • Hence a crypto custody solution needed
  • For now, limited to stocks, bonds with current license

Last month the SIX Digital Exchange (SDXwent live with the parent SIX Group issuing a digital bond using blockchain. Both the company and the industry acknowledge that there’s a long road ahead. So what’s on that path?

Hints appeared in the recent Project Jura report on the joint wholesale central bank digital currency (CBDC) trials between Switzerland and France, which were based on the SDX platform

SDX’s Head Finance and Risk, Mathias Studach, acknowledged that the exchange is not limited to Switzerland. He noted the group’s presence in Spain – it owns Spanish stock exchange BME – and said Europe and the UK are markets that SDX is looking into.

Not only is SDX live with tokenized swiss francs for applications in the wholesale finance segment, albeit not a CBDC, but it’s working on something similar with the Euro. Frankfurt-based Swiss Euro Clearing Bank (SECB) is a SIX subsidiary that acts as a correspondent bank for financial institutions within the Euro area. This will be the conduit to tokenize wholesale digital euros.

A second hint in the Project Jura report was mirroring tokens from a separate commercial paper network with SDX’s blockchain platform. Studach confirmed to Ledger Insights that mirroring assets from another chain can be viewed as a template. What other networks might be integrated?

“There is a large demand from token issuance platforms which are issuing security tokens and are looking for a trusted regulated secondary trading marketplace,” said Studach. “And we’re obviously looking into it because there is demand from both sides to make that happen.” While many security token platforms might also be interested in P2P trading, SDX is licensed under traditional rules, which means there is no interaction with retail customers. All transactions are via intermediaries.

If SDX brings securities from these tokenization platforms into the secondary market, the on and off-ramp will require a crypto custody solution. That’s something planned for next year. However, it’s still exploring the nature of the offering, potential partnerships and regulatory ramifications. “Whether this will take the form of build, buy or partner remains to be seen based on client appetite,” said Studach. 

Crypto on the radar 

Once there’s a custody solution in place, potentially that opens the door for cryptocurrencies. SIX Group already supports crypto ETPs and has crypto indices. “We are working to increase the pipeline with new products and services. One of the focuses is also on cryptocurrencies,” said Studach. Next year, a digital asset joint venture with Japan’s SBI in Singapore will launch institutional spot crypto trading.

Studach sees the institutional world and the cryptocurrency sector converging. “The regulatory requirements on the crypto side will increase. And today, banks are struggling to enter the crypto world. It has different processes. There are more risks involved,” said Studach. 

“But the more regulations (there are) around the crypto world, these two worlds will move – and are already moving – closer together. Ultimately, traditional intermediaries will be able to offer crypto services or cryptocurrencies as investments to their clients.”

Bond and equity security tokens

However, crypto is not an option in Switzerland in the short term. The current SDX license is limited to bonds and equities. On that note, Studach said there’s been a lot of interest from issuers. There’s a pipeline for additional listings, and Studach hope’s to see another issuance in Q1 2022, but it’s not easy to predict.

So far, the banks that are live on SDX are the three for the initial bond issuance, UBS, Credit Suisse and Zürcher Kantonalbank. Onboarding other banks will be driven by demand from a bank’s clients.

Given it’s December, I tried to entice Studach into year-end predictions, but he was a little reticent. When will security tokens reach a tipping point in a similar way to how NFTs and crypto have this year? 

A key factor is regulation, the reason Studach cited for security tokens taking time to adopt to date. Notably, Europe’s security token sandbox regulation might be passed in March 2022 but will only come into force nine months later.

“The ‘breakthrough’ will not be next year,” said Studach. “Whatever we call a breakthrough, I don’t know. I can’t predict (when). But the groundwork is done. We’re prepared to take off, and we will see increased volume next year and hopefully, that has a positive snowball effect around the world.”

If you want to dig deeper into the timeline for a security token breakthrough, follow the opinion pieces published over the holidays. Don’t miss the views from State Street Digital, Societe Generale FORGE, ING, Symbiont and Digital Asset.