Facilitate convergence between decentralized and traditional finance

For Massimo Butti, from SDX, the services offered by the SIX digital platform will simplify access to capital for companies and start-ups.

What differentiates traditional stock exchanges from new, fully digital exchange platforms based on blockchain technology? And what are the benefits for users? An update on these issues from Massimo Butti, Head of Equity at SIX Digital Exchange (SDX), who attended the conference Web3Connect held last Wednesday in Geneva.

How did the project to create the SDX digital exchange come about within the SIX Group, operator of the SIX Swiss Exchange?

SDX was born from an initiative created in 2018 within the SIX Group that aimed to explore the possibilities offered by new technologies within the scope of its offer of stock exchange services. These covered the use of distributed ledger technologies (DLT)

and blockchains. The objective was to assess the extent to which these technologies could bring benefits to customers and users of SIX services. One of the objectives was also to reduce entry barriers for new entrants and facilitate access to capital.

“The Swiss often struggle to develop positive ‘narratives’ around innovation. It’s a shame, because Switzerland has always been very innovative in the financial field.”

The project took the form of a company incorporated separately within the group – but which, however, is 100% owned by the SIX Group.

More generally, our ambition was also to be among the leaders in these technologies, rather than being followers, and to develop a center of excellence in Switzerland in this field. The Swiss often find it difficult to develop positive “narratives” around innovation. It’s a shame, because Switzerland has always been very innovative in the financial field. If we go back to the 1980s, the creation of Soffex, on which Eurex was created, for example, constituted the first entirely electronically traded derivatives market. However, this innovative force was not always seen elsewhere in Europe.

What are the main advantages offered by SDX that are not yet offered by traditional exchange platforms such as the SIX Swiss Exchange or BX, the Bern stock exchange?

In summary, it can be said that SDX will offer a simplified path that will allow small and medium-sized companies easier access to new sources of financing. Now we can distinguish between services for public markets and services for private markets. In the first segment, the SDX allows companies to be listed on a comparable basis to the conditions found in the traditional market on the SIX, but with a digital delivery system (“atomic nesting”) and also a segment aimed especially at small and medium-sized companies. (SME). On the private markets side, we also offer Central Security Depositaries (CSDs) in a fully digital format and based on DLT technology. Through it, it is possible for startups or growing companies, for example, to use this network of private placements to trade securities privately. In addition to bond trading, this also allows for the development of a secondary market.

Is this platform lighter to use – is it also less regulated?

You can’t say like that. SDX users must comply with the same customer identification rules (“know your customer” or KYC) as well as anti-money laundering rules. On the other hand, the processing of other aspects, such as documentation or reports, is carried out in a lighter and largely automated way. This high degree of automation and the future use of “smart contracts” will also reduce costs. This also greatly simplifies the completion of other funding rounds.

“As long as an issuer meets the required conditions, it makes no difference whether the volume reaches 500,000 francs or 50 million francs.”

Do you set a ceiling in terms of the size of volumes processed?

Not. We are not prescriptive about this. As long as an issuer satisfies the required conditions, it makes no difference whether the volume reaches 500,000 francs or 50 million francs. The purpose of our platform is to bring together issuers and investors. We believe that there are huge opportunities to connect, on the one hand, people or institutional entities such as venture capital (VC) and private equity (PE) funds, as well as specific entities that have capital such as very wealthy people (HNWI), family offices or investor clubs and, on the other hand, start-ups or small and medium-sized companies in need of funding.

By offering new services via SDX, is the SIX Swiss Exchange not afraid to cannibalize part of its own activities, for example in small cap trading?

We see SIX’s traditional service offering and the new Distributed Ledger Technology (DLT)-based offering as complementary. For the most part, we will continue to offer both options. SIX itself has placed an obligation on both the traditional market and the new SDX digital platform. F10, an accelerator backed by SIX, was able to privately issue and place shares in the form of digital intermediary bonds. After 10 minutes, these bonds were issued to the custodian banks participating in our network – and after 15 minutes, they could appear in investors’ bond portfolios. This opens up many new possibilities. After all, one of our goals is also to facilitate the convergence between these two worlds – that of decentralized finance (DeFi) and that of traditional finance (TradFi), as they are sometimes called in the jargon.

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