- SDX explores Europe, the United Kingdom
- Plans to tokenize commercial bank money into euros
- You are looking to integrate security token issuance platforms
- Hence a necessary crypto custody solution
- For now, limited to stocks, bonds with current license
Last month, the SIX Digital Exchange (SDX) went live with parent company SIX Group issuing a digital bond using blockchain. The company and the industry recognize that there is a long way to go. So what’s on this path?
Hints emerged in the recent Project Jura report on the joint central bank digital currency (CBDC) trials between Switzerland and France, which were based on the SDX platform.
SDX’s finance and risk manager Mathias Studach has acknowledged that the exchange is not limited to Switzerland. He highlighted the group’s presence in Spain – it owns the Spanish stock exchange BME – and said that Europe and the UK are markets SDX is studying.
Not only is SDX live with token Swiss francs for applications in the wholesale funding segment, although it is not a CBDC, but it is working on something similar with the euro. Based in Frankfurt, the Swiss Euro Clearing Bank (SECB) is a subsidiary of SIX which acts as a correspondent bank for financial institutions in the euro area. This will be the channel to symbolize the digital wholesale euros.
A second clue in the Jura Project report was to mirror the tokens of a separate commercial paper network with SDX’s blockchain platform. Studach confirmed to Ledger Insights that mirroring another chain’s assets can be seen as a model. What other networks could be integrated?
“There is a strong demand from token issuing platforms that issue security tokens and seek a regulated and trusted secondary market,” Studach said. “And we are obviously looking at this because there is a demand on both sides for this to happen.” While many security token platforms may also be interested in P2P trading, SDX is licensed under traditional rules, which means there is no interaction with retail clients. All transactions are done through intermediaries.
If SDX brings titles from these tokenization platforms to the secondary market, the entry and exit ramp will require a crypto custody solution. This is something planned for next year. However, he still explores the nature of the offer, potential partnerships and regulatory ramifications. “It remains to be seen whether this will take the form of a build, buy or partner depending on customer appetite,” Studach said.
Crypto on the radar
Once a custody solution is in place, it potentially opens the door to cryptocurrencies. SIX Group already supports crypto ETPs and has crypto indices. “We are working to expand the pipeline with new products and services. One of the targets is also on cryptocurrencies, ”Studach said. Next year, a digital asset joint venture with Japan’s SBI in Singapore will launch institutional spot crypto trading.
Studach sees the convergence of the institutional world and the cryptocurrency sector. “Regulatory requirements on the crypto side will increase. And today, banks are struggling to enter the crypto world. He has different processes. There are more risks involved, ”Studach said.
“But the more regulations (there are) in the crypto world, these two worlds will come closer – and are already getting closer – to each other. 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 stocks. On that note, Studach said there has been a lot of interest from issuers. There is a pipeline for additional registrations, and Studach is hoping to see another show in Q1 2022, but that’s not easy to predict.
So far, the banks that are live on SDX are the three for the initial bond issue, UBS, Credit Suisse and Zürcher Kantonalbank. The integration of other banks will be driven by demand from a bank’s customers.
Considering it’s December, I tried to get Studach to make some year-end predictions, but he was a little reluctant. When will security tokens reach a tipping point in the same way as NFTs and cryptos this year?
A key factor is regulation, the reason given by Studach for security tokens taking time to adopt to this day. In particular, the European regulation on the sandbox of security tokens could be adopted in March 2022, but will not come into force until nine months later.
“The ‘breakthrough’ will not be next year,” Studach said. “It doesn’t matter what we call a breakthrough, I don’t know. I can’t predict (when). But the groundwork is done. We’re ready to take off, and we’ll see an increase in volume next year, and hopefully that will have a positive snowball effect around the world.
If you want to dig deeper into the timeline of a security token breakthrough, follow the opinion pieces posted during the holidays. Don’t miss the sights of State Street Digital, Societe Generale FORGE, ING, Symbiont and Digital Asset.