In July, the Swiss stock exchange said it was building a new digital platform, using distributed ledger technology similar to blockchain, to trade tokenised assets. SIX has now taken a step towards realising this goal by teaming up with a start-up that helps families inherit digital assets from deceased relatives.
On Monday, SIX announced it has taken a minority stake in PassOn plus a seat on the Swiss start-up's board.
The canton Zug-based start-up PassOn is building its own separate blockchain platform that allows people to transfer digital assets to friends and family according to a predefined set of rules or after they pass away. PassOn is developing an infrastructure capable of linking tokens to their underlying assets, even when the token is transferred from one party to another.
“The challenge in the digital asset space is to ensure clean, transparent and legally binding title to the assets between parties,” said Valerio Roncone, Product Management & Development, Securities & Exchanges, SIX, in a statement. “This requirement is identical for counterparties who are exchanging assets whether they are living or deceased.”
“There are many actors looking into this technical issue, but PassOn AG is doing so in a fully regulated way, building an infrastructure that is notarized, visible to the authorities and transparent to all stakeholders that are involved,” Roncone told swissinfo.ch. PassOn’s Swiss domicile was another attractive feature of partnering with the company.
The collaboration is one step along the path to creating a new ecosystem for the digital space. Another step for the SIX Digital Exchange is signing up to Blockstream’s ‘Liquid’ sidechain, which was formally launched last week. This technology was designed by the San Francisco-based company to speed up large quantities of bitcoin transactions.
But it has another function more suitable for SIX’s purposes. SIX has repeatedly stressed that the primary focus of its Digital Exchange will not be for cryptocurrency transactions, even though it does not rule this out in future.
However, Liquid also allows users to launch their own tokens on the system. While SIX is not officially commenting on its Liquid tie-up, one of the aims of the Digital Exchange is to list and trade tokenised versions of company shares.
While the range of financial products that SIX will provide on its Digital Exchange has yet to be defined, they will likely include tokenised company shares. This would allow SIX to tap into the growing trend of initial coin offering crowd investing schemes that are helping to launch many blockchain start-ups. Some observers anticipate that the issuance of tokenised shares will become mainstream in future in all industry sectors..
The SIX Digital Exchange is on track to meet its deadline of going live by summer next year, Roncone told swissinfo.ch. The platform will start off with a minimum set of services and products and will build up its portfolio in time.
SIX is currently in talks with the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) to set up a regulatory framework to allow the whole trading chain to take place within a single platform.
At present, SIX operates three legal entities to cover trading, clearing and settlement under one roof. But the Digital Exchange will streamline all these services, to allow trading, clearing, settlement and custody to operate in a single coordinated step. “This leaner, faster set-up will allow post-trading to operate in a more efficient, cost-effective way,” said Roncone.
“We do not believe in a sudden leap between the traditional and digital worlds of trading,” Roncone added. “We think there will be a transition period, which is why we want to build a bridge between traditional and digital platforms.”
SIX will therefore provide a flexible system to allow member banks and broker dealers to move portions of their assets onto the Digital Exchange at their own pace.
Blockchain was initially created to support the world’s first cryptocurrency, bitcoin, by allowing the digital cash to be passed directly from one person to another. The technology has also paved the way for the creation of other encrypted digital tokens, linked to a whole range of assets and data.
The idea, which is so far untested on an industrial scale, is that transferring these tokens from one party to another will be quicker and more cost-effective than the traditional method of trading stocks, bonds and securities. Theoretically, trades could be carried out instantaneously rather than the two-day period between order and settlement which is typical of many trades currently.
SIX is building a Digital Exchange to facilitate the trading of digital tokens. While bitcoin seeks to avoid third parties like centralised stock exchanges.