Euroclear Alternative Seeks Public Listing for Blockchain Securities
Solidum is gearing up to take its blockchain-based securities public.
Last month, the traditional investment firm issued notes based on a reinsurance contract without the need for Euroclear, the widely used post-settlement provider. Instead, Solidum was able to issue $14.8 million in securitized notes using its own proprietary ILSBlockchain.
The insurance-linked securities specialist built its blockchain platform after losing its connection to Euroclear last year, and now sees the platform as a way for other providers like itself to offer similarly sized investments that traditional settlement companies might typically turn away.
But as a private placement, the offering was limited not only in amount, but also in who could invest. Now, the company is working to open the door to issuing larger dollar amounts to more investors by becoming a "listing member" of The International Stock Exchange (TISE), based in Guernsey, a British Crown dependency.
Fiona Le Poidevin, the CEO of TISE, confirmed the exchange has had conversations with Solidum about how securities issued on its blockchain might someday be publicly listed.
"I very much look forward to seeing how Solidum's venture develops," she told CoinDesk in an email.
Solidum is currently in talks with the Guernsey Financial Services Commission to ensure the platform is compliant with TISE requirements, which include paying an initial £10,000 ($13,000) fee and £6,000 per year after that.
Until then, though, the reinsurance contract itself remains with the original provider and the securitized notes purchased by the counterparties can be traded like any other security, until the notes are due in 2023.
To jumpstart that trading, Solidum partner and portfolio manager Cedric Edmonds said two funds are currently in the process of clearing regulatory requirements to join the group. Once that process is complete and the first trades commence, Edmonds expects those who have been unable to gain access to traditional platforms to be ILSBlockchain's early adopters.
About his mission, Edmonds said:
"You're basically taking the banks and Euroclear out of the system."
Challenging the incumbents
While Solidum is now out to make banks and settlement platforms less necessary, the project has its roots in a thwarted effort to do business the old-fashioned way.
The company began issuing its first private placements in 2010, working with Germany's Deutsche Bank to gain access to Euroclear until last year. In those days, the European clearing and settlement house would create the notes, and then Solidum would settle them with investors using the traditional delivery-versus-payment method.
But last year, Edmonds said, internal changes at Deutsche Bank resulted in Solidum losing access to Euroclear. Deutsche Bank declined comment for this article.
Following a period of looking for alternate banks to reestablish access to Euroclear — or even the London Stock Exchange Group's Crest settlement system — Edmonds stumbled across Multichain, an open-source protocol inspired by the bitcoin blockchain.
After downloading the Multichain software in April, Edmonds spun up a series of nodes to test how the shared ledger technology might be modified to "mirror what people do within the regular financial markets," he said.
The outcome: "It did exactly what I wanted."
Not just another middleman
Despite blockchain work conducted by Euroclear and other similar platforms around the world, Edmonds believes he's created a new way for investors deemed too small for Euroclear to access similar functionality – but at far less expense.
The portfolio manager said that, while traditional middlemen collectively charge between $50,000 and $100,000 annually for the services, companies that want to issue securities through ILSBlockchain would only need to pay $2,500.
"If you take out Euroclear, and you take out the bank from trying to control everything, then you start to reduce the fees quite drastically," Edmonds said. "In a way, Euroclear shot themselves in the foot."
Solidum's role here might resemble then a new, albeit more efficient, middleman. However, Edmonds said his company is little more than a gatekeeper.
In its first issuance, Solidum managed the blockchain nodes representing various roles, including playing the role of paying agent and blockchain sponsor, overseeing compliance with anti-money laundering and know-your-customer regulations.
But in the future, he said users themselves could manage nodes, concluding:
"We don't have an overriding system that controls it. Once we've created the nodes, given people access to the system, we can turn off our server and everyone can carry on quite happily."
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