Test-Driving New Trading Vehicles
At STAC, Talk of New Trading and Investment Opportunities Abounds
With a large segment of the trading industry convening last week in the Windy City for the Security Trading Association of Chicagoâ€™s (STAC) 93rd Annual Mid-Winter Meeting, the standard discussions around market structure, new trading technologies and regulatory developments were major themes. But this year, there was another burning topic that seemed to be bubbling to the surface throughout the three-day confab: talk of the opportunities presented by a handful of new asset classes and investment vehicles available to traders.
Among the most promising are those made possible by the digitization and tokenization of previously illiquid assets like real estate, private companies or royalty rights, said Vincent Molinari, CEO of Templum Markets. The firm last year issued the first digitized security offering of a trophy real estate property with the Aspen St. Regis and this week partnered with IPwe to launch a patent finance market, and according to Molinari, the opportunities for digital assets â€“ including new avenues for asset owners to raise funds and new abilities for investors to trade them â€“ are limitless.
â€śIssuance of unregistered securities eclipsed public offerings for the first time in 2017, with more than $3 trillion raised privately in the U.S. versus some $1.5 trillion in the public markets,â€ť said Molinari. â€śGiven this shift and key rule changes in recent years, private companies are more interested than ever in innovative options like ours for raising capital in the primary and secondary markets.â€ť
Triad Securities Corp.â€™s Scott Daspin, who moderated the panel on ICOs vs STOs, said that investors he speaks with are watching the moves made by firms like Templum closely given the new opportunities they are enabling. But he notes that most are less concerned about the form an asset takes and more focused on whether it will ultimately add value to their portfolio.
â€śNo doubt there is some amazing work being done to digitize previously illiquid and untradeable securities. But the firms we speak with generally care only about getting equity or cash flows in a quality investment. Provided the vehicles all satisfy the necessary regulatory compliance requirements, the mechanics on how it is structured, issued and traded are of less relevance.â€ť
Another new discussion topic at this yearâ€™s conference was the opportunity presented by the burgeoning cannabis market, with recreational marijuana use now legal in Canada and ten U.S. states and the District of Columbia.
Sachin Barot, a longtime executive with front-end technology vendor Flextrade before leaving in 2017 to found cannabis analytical research and laboratory testing firm CERESLabs, noted that at $10.8 billion in 2018, the U.S. cannabis market has surpassed both the cookies and crackers snack food market.
â€śWe’ll see tremendous opportunities for institutional investors in 2019 as the market continues to grow and more investment research firms cover the sector,â€ť he said. â€śForecasts show the industry reaching $17 billion in 2020 and over $25 billion by 2025, which presents massive growth potential for us as one of the premier testing companies.â€ť
Last but not least on the agenda was discussion of crypto. While the price of Bitcoin remains significantly off its early 2018 peak, the industryâ€™s interest appears to remain considerable.
The â€śCryptocurrencies Get Institutionalizedâ€ť panel saw standing room only, with Sean Ristau of Bcause moderating and Chris Hehmeyer, Hehmeyer Trading + Investments; Brad Koeppen, CMT Digital; Edward Woodford, Seed Exchange; Ian Grieves, ErisX; and Rosario Ingargiola, OTCXN serving as panelists.
Although interest in the new asset class hasnâ€™t necessarily translated to significant participation from the institutional buyside yet, Hehmeyer was not surprised and remains optimistic based on the new participants that continue to enter the space.
â€śThe retail world may be able to lose a little money because it is their money and this is the same with proprietary trading groups. However, if you are going to invest someone elseâ€™s money itâ€™s a different story. This is why fiduciaries and custodians that are coming to the market with products will bring a whole new group of market participants.â€ť
In addition to seeing custodians move into the space, CMT Digitalâ€™s Koeppen offered another indicator that the markets are maturing.
â€śMany of the really attractive arbitrage opportunities that existed a few years ago have vanished, which to us suggests the entry of more sophisticated players into the market, with more on the way.â€ť
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