London Stock Exchange Group is Using Blockchain to Record Unlisted Securities
A subsidiary of the London Stock Exchange Group is using blockchain to help unlisted small businesses tap resources previously only available to larger, public companies.
Developed by London Stock Exchange subsidiary Borsa Italiana, the blockchain platform, built with IBM Blockchain, is being designed to digitize both securities ownership and the capital structure of small- to medium-sized businesses (SMEs).
Currently undergoing an initial test phase with a small group of Borsa Italiana clients, the platform, powered by Hyperledger Fabric 1.0, is expected to eventually simplify the issuance of shares, streamlining SME access to capital.
London Stock Exchange Group's head of commercial technology innovation, David Harris, explained how moving the entire record of a small business's capital structure to a blockchain could make it easier for corporate owners to gain the trust of future investors.
Harris told CoinDesk:
"Once you offer this structure to allow the ownership to be registered on a blockchain, you're then opening up greater certainty as to the ownership structure, which adds to the transparency and certainty of what future investors in the company will be walking into."
Currently limited to SMEs in Europe, the blockchain solution is designed to replace the paper trading certificates still in use by many private companies with smaller budgets.
At this initial phase, only the records themselves are being moved to a blockchain, meaning Harris doesn't expect the increased efficiency will result in more frequent trades and higher liquidity.
However, Harris said the current tests are just the first of what he imagines could lead to the simplification of the fundraising process itself.
"As you build out this ecosystem, it does not take a giant leap to where future shareholders, future capital, future debt can be raised," said Harris.
Still, today's news also marks the first major public blockchain development for the London Stock Exchange Groups since it became a founding member of the then-unnamed Hyperledger project in late 2015.
After making early contributions to the code that eventually became known as Hyperledger Fabric, the London Stock Exchange Group has been relatively quiet.
According to Harris, the group, which also includes the Turquoise stock exchange and the FTSE AIM Italia SME index, remained skeptical that blockchain was mature enough to meet the company's regulatory demands and transaction requirements.
In addition, Harris said there is also the difficulty of converting traditional assets and workflows into blockchain assets and smart contracts.
Then, with the release of Hyperledger Fabric 0.6 earlier this year, LSEG set up an internal working group that united its business, regulatory and legal teams as part of an effort "to figure out the right places" to apply the technology.
The final decision to focus on private small business shares puts the group in a similar category to Nasdaq, which unveiled its own private securities platform using Chain earlier this year.
"With new companies, small- and medium-sized enterprises, who are not part yet of the public issuance process, they are a good starting point to introduce new types of models," said Harris.
While the project began with Fabric 0.6, the version currently being tested was recently upgraded to the newly released production-ready Fabric 1.0, according to IBM’s vice president of blockchain solutions and research, Ramesh Gopinath.
Gopinath reported that even after the upgrade, what remained to be satisfied from a regulatory perspective was the security of the data being supplied throughout the "lifecycle." This included all the events a small company undergoes, from its entrance to the blockchain ecosystem, through to its possible exit as a publicly traded company.
By "weaving" data provided by the still-unnamed test firms together with corporate actions programmed into smart contracts, "the right levels of trust in the data and the workflow itself" can potentially be achieved, he said.
A time frame for when the results of the tests will be published was not revealed.
"It's a technology that once it's widely adopted – and it has a long way to go – it is a disruptive innovation to its core, which is very exciting."
That rumble you hear is the sound of regulators around the world mobilizing resources to tackle the pressing matter of token sales.
Yet, in spite of the spectacular growth of blockchain token-based funding, no one seems to have a clear idea of what type of rules to introduce. The resulting uncertainty (not to mention ridicule) is left hindering progress as money flows to unviable projects and investors are left vulnerable to foul play – exactly what regulation is supposed to prevent.
Perhaps a new approach is needed.
But to see where this could go, it's worth stepping back and asking what we expect the regulation to do. Safety belt
First, why do we need regulation, not just of finance, but of anything at all?
To protect us. At its roots, that is the main role of government – to protect its citizens from avoidable harm and extreme loss brought about by others or from our own lack of common sense. When it comes to securities, that usually means stopping us from making poor decisions…
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oila! Finally, the Inglourious Basterds script is here for all you fans of the Quentin Tarantino movie. This puppy is a transcript that was painstakingly transcribed using the screenplay and/or viewings of the movie to get the dialogue.
Inglourious Basterds Script(DISTANT RUMBLING)
(MEN SPEAKING GERMAN)
While I'm very familiar
with you and your family,
I have no way of knowing if
you are familiar with who I am.
Are you aware
of my existence?
This is good.
Now, are you aware of the job
I've been ordered to carry out in France?
Please tell me
what you've heard.
that the FÃ¼hrer has put you in charge
of rounding up the Jews left in France
who are either hiding
or passing for Gentile.
The FÃ¼hrer couldn't have
said it better himself.
But the meaning
of your visit,
pleasant though it is,
is mysterious to me.
The Germans looked through my house…