October 13th 2020
Today we unveil a new step toward the wider adoption of tokenized securities by bridging them with the traditional banking systems for the custody, delivery, settlement and clearing of securities.
After having pioneered the tokenization of corporate shares in 2018 and developing them since, this new process to make security tokens bankable with financial institutions is a leap forward for their adoption by all types of investors.
The first breakthrough in that regard was the creation in 2018 of the very first share-token, a company’s registered share incorporated in the form of an ERC-20 token providing direct ownership of the share with full voting and dividend rights.
That innovation highlighted the multiple benefits of tokenizing shares, such as zero cost issuance, instant and 24/7 share transfers, cap table and corporate action automation, and the possibility for any company to open its shareholding to the public easily.
However, until today a downside of tokenized shares was the quasi impossibility to address traditional investors such as VCs, family offices and other institutions as ERC-20 tokens were not bankable within the existing infrastructure of trading, clearing and settlement systems.
To solve that problem, we propose today a simple process allowing a share (or any other security) to exist in both forms: a tokenized version and a standard version attributed with an ISIN code (International Securities Identification Number), the global standard for tracking securities across markets. As a result, any company can incorporate its shares in either forms, then seamlessly switch between tokenized and regular shares when needed.
To demonstrate this process, we have de-tokenized 10% of our own shares, which now have the Swiss ISIN code CH0539730892. To do so, we have worked with Swiss bank REYL & Cie as the paying agent, ShareCommService as the registrar, and SIX as the ISIN provider.
As a result, the shares of Mt Pelerin Group SA exist today in the two following forms:
By getting an ISIN code, tokenized shares become compatible with the financial data software used by institutional investors and can therefore be traded and kept in custody according to their usual processes.
This new bridge between traditional finance and tokenized securities is a considerable progress toward their adoption. With it, institutional investors can now process private equity related tokens as any other security, and small cap issuers can now address crowd and professional investors simultaneously.