LSEG Featured In FCA ‘Sandbox’
London Stock Exchange Group will take part in the UK Financial Conduct Authority’s next sandbox cohort to test integration of distributed ledger technology within the UK platform’s operated listing and trading venues.
Robert Barnes, global head of primary markets and chief executive Turquoise at LSEG, said in a report from the exchange, Fintech Comes of Age: “Our insights tell us that 2019 will be the year in which fintech truly comes of age. During the month of April 2019, payments company Network International achieved its record IPO raising in excess of $1.4bn on London Stock Exchange as the largest ever technology or fintech IPO from Middle East and Africa to list on a global exchange. Nexi, the global payments firm, then followed, successfully raising more than $2.3bn on Borsa Italiana, the Milan-based exchange operated by London Stock Exchange Group.”
Check Warner, co-founder and chief executive of Diversity VC, said in the report: “2019 is the year when fintech is no longer a start-up category but a mainstream theme in every major financial institution in the world.”
Barnes added that the FCA’s regulatory sandbox leads the world in enabling fintechs to test their innovations. He continued that on 29 April the FCA announced the next list of firms to feature in its fifth sandbox cohort, including London Stock Exchange Group.
The regulatory sandbox allows new firms to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place.
“Our test, alongside Nivaura and select market participants, will integrate distributed ledger technology within LSEG-operated listing and trading venues to test market infrastructure for the issuance, admission and trading of equity securities, evidencing change of beneficial ownership,” said Barnes.
In February this year LSEG led a $20m in seed and seed extension capital fundraising for Nivaura, a regulated fintech company focused on automating the issuance and administration processes for financial instruments. Nivaura was set up three years ago to automate the fragmented and manual processes involved in the issuance and administration of securities including bonds, loans, equity, and structured products.
Last month London-based 20|30 said it has become the first UK company to successfully complete the tokenisation and issuance of their equity as part of the FCA’s fourth sandbox in partnership with Nivaura. The test issuance was executed by TokenFactory, a capital raising platform and the first of 20|30’s products to go to market.
LSEG took part in the test issuance by sending settlement instructions to a public blockchain via 2030’s platform, powered by Nivaura technology, which demonstrated connectivity between a regulated trading venue, the Turquoise Plato platform, and a public blockchain infrastructure.
Tomer Sofinzon, founder & chief executive of 20|30, said in a statement: “For tokenisation to be embraced it is vital that the issuance and trading of tokens be transacted with the same level of trust and legal certainty as shares and other securities. That is why we are delighted to announce that for the first time an equity token offering has harnessed blockchain to effect settlement in collaboration with a major stock exchange.”
Gavin Youll, chief financial officer at Nivaura, told Markets Media in March: “We expect to see Nivaura being used in earnest in capital markets by the end of 2020. Spencer Lake and Nikhil Rathi joining the board adds credibility.”
Lake, formerly head of global markets and vice chairman of HSBC’s Banking and Markets Division will be an investor in Nivaura and a commercial advisor on business development. Rathi is chief executive of London Stock Exchange plc and director of international development at London Stock Exchange Group.
Christopher Woolard, executive director of strategy and competition at the FCA, gave a speech at the Innovate Finance Global Summit 2019 in London this week as the regulator issued a report evaluating the progress of its Innovate program since launching five years ago.
He said that groups or firms that have gone through the regulator’s Innovate programme have come to market 40% faster than equivalent financial services firms.
— FCA (@TheFCA) April 29, 2019
“That equates to shaving three months from testing to roll out,” Woolard added. “Nearly 700 firms have received some kind of assistance from our innovation work.”
Out of the 47 firms that have completed sandbox testing, around 80% are operating in the market, with the necessary authorisation, and there are a further 63 in the pipeline.
Woolard said: “Of the 44 start-ups that tested in the first three sandbox cohorts, almost half either received additional investment or were acquired during or after their test.”
The FCA evaluation report said Nivaura were the first company to execute a tokenised security issuance in the Sandbox.
“Automating the end-to-end securities issuance lifecycle process, along with the option of tokenisation, has the potential to significantly reduce cost and shorten time to market, which opens up this form of capital-raising to a wider range of smaller corporates and allows existing corporate issuers to execute more efficiently,” added the FCA. “We have subsequently seen a range of incumbent organisations exploring similar propositions, alongside other new entrants testing tokenised security issuances in the sandbox.”
The regulator seeks input on the use of DLT for trading, settlement and regulatory reporting.
The shared private ledger from Baton Systems enhances settlement speed and efficiency.
Customers can have accelerated treatment of financial transactions, exchange and storage of data.
Less risk and increased speed will lead to lower costs and improved outcomes for investors.
The Australian exchange will welcome the first set of new customers to Synfini over the coming months.