The Canadian Securities Exchange is planning to launch a blockchain-powered platform to clear and settle securities trades, challenging the monopoly long held by TMX Group Inc.
This new clearing house, which requires approval from Canadian regulators, would allow companies to issue conventional equity and debt using a digital token representing a share in a business, also known as a tokenized security.
The CSE said using blockchain, a ledger where digital transactions are recorded, will allow securities trades to be confirmed in real time rather than two full business days for settlement under conventional systems, and reduce errors.
The traditional process used to settle accounts and clear trades is “slow, archaic and high cost,” said the CSE’s chief executive Richard Carleton, particularly compared to the other instant financial transaction systems used today, such as digital payments.
“We have the opportunity here to start from scratch with issuers that are prepared to basically bypass the traditional paper-stock-certificate system and move to these equity securities tokens,” he said in an interview.
This clearing house, if approved, would serve as a rival to Canadian Depository for Securities Ltd. (CDS), which has long served as the country’s main securities clearing and settlement hub.
CDS is owned by the TMX Group, which operates both the Toronto Stock Exchange and the TSX Venture.
The CSE will be submitting an application to the applicable provincial securities commissions across the country.
One of the questions that needs to be addressed, in conjunction with regulators and industry, is whether issuers on other exchanges would be able to use the CSE’s blockchain-powered clearing house, he said.
“Certainly, that is a place that we want to get to,” he said.
He noted that it will be a “material effort” for older established companies that have long used the traditional paper stock certificate system to convert to a modern platform.
“This is the direction that clearing is going to take around the world,” he said. “But the first takeup will be from new issuers.”
Through the CSE’s new platform, securities would be offered to investors through a Security Token Offering.
The CSE has already signed a memorandum of understanding with Vancouver-based Kabuni Technologies, which plans to file a prospectus with the British Columbia Securities Commission to issue tokenized securities to investors.
Carleton said the CSE expects to be the first recognized exchange in Canada to introduce a fully-developed blockchain platform for trading, clearing and settling STOs. It has licensed the technology from New York-based Fundamental Interactions Inc.