March 28, 2023

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In the fast-paced world of capital markets, choosing the right software vendor is crucial for optimizing trading operations and staying competitive

Technology innovation has enabled the growth of digital asset classes. The tokenization of traditional and crypto trading was just the beginning. Everything is tradeable and tokenized now: Carbon credits, real estate, art, wine, music, collectibles, e-sports, influencers, and more. 

Even after the regulatory freeze on crypto securities, especially in 2022, we are still experiencing more financial institutions tokenizing bonds, as well as regulated entities distributing stock tokens or using the blockchain for pre-IPO liquidity.

Not to be mistaken with cryptocurrency assets, digital assets (or tokens) can represent a variety of ‘things’ such as ownership in a company, access to a particular service, or even a physical asset such as gold. The main difference between these two types of assets is their primary use case. Cryptocurrencies are mainly used as a means of exchange, whereas digital assets or tokens can represent a wide variety of things beyond just currency. Additionally, cryptocurrencies are often decentralized, while digital assets or tokens can be decentralized or centralized depending on the specific blockchain network they are built on.

HSBC predicted that digital assets could reach 24 trillion USD by 2027, up from $2T in 2021, according to Finoa. JP Morgan has a plan to tokenize trillions of dollars of assets to develop new mechanisms in financial services such as trading, borrowing, and lending.

Equity, funds, debt, and real estate can all benefit from tokenization. Mid-cap companies, investment banks, asset managers, funds, and stock exchanges from around the globe are already starting to shift towards blockchain-based financial assets.

“I believe the next generation for markets, the next generation for securities, will be tokenization of securities,” BlackRock’s Larry Fink, who’s previously expressed skepticism over crypto, told New York Times.

. When considering software solutions, market operators can work with an independent software vendor (ISV). In this article, we will explore the pros and cons of partnering with an ISV in the capital markets industry, and why Exberry provides all the advantages, and none of the disadvantages, of partnering with an ISV.

Bringing the Costs Down

Roland Berger’s study projects that tokenized equity could reduce €4.6 billion in trading costs by 2030. “I actually believe this technology is going to be very important,” Fink said. “Think about instantaneous settlement [of] bonds and stocks, no middlemen, we’re going to bring down fees even more dramatically. Think about it. It changes the whole ecosystem.” 

Take Real Estate as another example. It allows easy and cost-effective transacting by selling the assets quickly – bringing liquidity to the illiquid market.

Can exchanges rely on tokenized markets as a sustainable, institutional-grade addition to their business roadmaps?

Security Tokens Listing by Exchanges – The LuxSE Story

Last year, Luxembourg Stock Exchange admitted security tokens listing, further confirming the expanding interest in tokenization. “The Luxembourg Stock Exchange (the “LuxSE”) announced on 31 January 2022 that it will admit security tokens on its Securities Official List (SOL), which is a dedicated section of the LuxSE’s official list. Security tokens are to be understood as financial instruments that are issued and exist on a distributed ledger, allowing for a fully digital issuance process (the “DLT Financial Instruments”).” (Ashurst, 2022). 

Many traditional exchanges are now offering tokenized assets alongside their traditional offerings. Some examples of traditional exchanges that offer tokenized assets include:

  1. SIX Swiss Exchange: This exchange offers tokenized shares of various companies, such as Nestle and Novartis, through its platform called SIX Digital Exchange (SDX). 

  2. Deutsche Börse: The German exchange has launched a blockchain-based platform called “DLT” which allows companies to issue and trade securities in a tokenized form. 

  3. Binance: While Binance is a cryptocurrency exchange, it has also launched a separate platform called Binance DEX which offers trading of tokenized versions of various assets, including stocks and commodities. 

  4. London Stock Exchange: LSEG has recently announced its partnership with Nivaura, which is a platform that uses blockchain technology to enable the issuance and trading of tokenized securities. 

  5. NASDAQ: The NASDAQ stock exchange has been exploring the use of blockchain technology to offer tokenized assets and has been testing its own platform, the Nasdaq Linq.

It is evident that tokenization is a new technology that exchanges and key players in the financial services market embrace with care. Some exchange-traded funds (ETFs), (like iShares Gold Trust and United States Oil Fund) have also been tokenized. They are subject to the same stringent requirements as stocks and are regulated by the US Securities and Exchange Commission (SEC).

How to Build Institutional-Grade Tokenized-Asset Exchanges

At Exberry, we collaborate with exchanges in various stages of their digital asset journey. Taking a page out of their playbook, here are the steps I believe every exchange must follow to successfully launch an institutional-grade digital asset exchange.

How to Build Institutional-Grade Tokenized-Asset Exchanges

At Exberry, we collaborate with exchanges in various stages of their digital asset journey. Taking a page out of their playbook, here are the steps I believe every exchange must follow to successfully launch an institutional-grade digital asset exchange… Read the full article on Finextra

Regulated Exchanges and AI: What’s Behind the Hype

The topic of AI has been the subject of a number of panels at recent industry events attended by Exberry. We thought it would be helpful to provide a snapshot of some of the leading thinking on AI, particularly how it is predicted to affect regulated exchanges.

Key Insights from WFEClear 2024 Conference

A few weeks ago, along with my colleagues, I attended the WFEClear 2024 Conference in Madrid, which focused on clearing and derivatives. Many relevant topics were discussed in the well-attended event and, specifically, I noted the panel on “Practicalities of DLT and Clearing” explored advancements in distributed ledger technology and its potential intersection with central clearing.

Modernising Post-Trade Systems: A Journey, Not a Destination

Post-trade processing is an integral part of the financial services industry as it verifies the details of very often instantaneous transactions. Similar to shifts in the rest of the financial services industry, clearing and settlement firms are being influenced by the emphasis of real-time risk management and data-driven decision-making.

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