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Why digital securities take over the private capital market?

July 09, 2019 | Capital Markets
Why digital securities take over the private capital market?

Considerable interest in digital securities brought almost 100 people to the HighCastle’s event "R(Evolution): Why digital securities take over the private capital market?" on July 2nd hosted at Rise London, the largest fintech co-working space in Europe created by Barclays.

HighCastle is the UK investment marketplace, and, so far, the first and only blockchain-based share registrar in the UK, which provides the end-to-end technological infrastructure and legal framework for the compliant offering, issuance, distribution, management and transfers of private securities in a digital form.  

As a first runner in the securities tokenisation industry, HighCastle is driven and challenged to educate about this evolving market and answer contentious questions. 

During the event, Phil Millar, Executive Director at HighCastle, introduced the new digitised form of issuance and offering of private securities, which provides greater security to the shareholders' registry and protection for shareholders/debtholders in private companies as well as the automation of the investment process and opportunities to exit these investments sooner and efficiently. 

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Many participants of the event were surprised to learn that currently private companies are keeping their registry of shareholders in an electronic form on  excel spreadsheets, undertaking manual changes of shareholdings, submission of changes of majority shareholders (over 10%) and only once per year company submit the necessary Confirmation Statement with the latest full list of shareholders to Companies House in the UK. Maintaining of shareholders on a distributed ledger instead of spreadsheets could significantly increase the security of the ownership records and provide investors with other benefits of digitisation, such as online voting, automated dividends/interest payments, less paperwork for transfers (sale) of securities and trading, near real-time settlement etc.

Mr. Millar provided a definition of digitised securities issued on the distributed ledger, which is the following:  a digital  (or tokenised) security is a block-record (book-entry) of ownership at the distributed ledger register (share registry).

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Phil Millar also presented an overview of HighCastle’s infrastructure and functionality and explained the role of the HighCastle’s permissioned distributed ledger - Prime Issuance, Registry and Settlement Distributed Network (PrimeNet) for the private capital markets. HighCastle’s PrimeNet provides a smooth, quick, efficient and cost-conscious digital securities issuance and settlement process for all of the trades executed either through a Multilateral Trading Facility  (MTF) or Over-The-Counter. 

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The panelists, Jeffrey Sweeney, Chairman and CEO at US Capital Global, Nick Ayton, Family Office Advisor and  Philip Walsh, Regulatory Compliance Director at HighCastle discussed the benefits of digitisation and industry challenges such as the need for engagement with investors through the development of good practice and reputable investment projects. 

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The Panel discussion was moderated by Ulyana Shtybel, Vice President and Chief Capital Officer at HighCastle.

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The panelists with the active involvement of the audience agreed on the important aspects of securities digitisation, investment and trading, namely:

The quality of the investment projects must be the primary consideration, with then the greater liquidity opportunities and shareholder management that the digitisation of private securities brings.

Digital securities are often confused with cryptocurrencies and this incorrect association can only be resolved through the practical involvement of investors and extensive education and market awareness.

Issuance of digital securities for private companies is reasonable for the automation and securing of transfers and trading.

European private companies issuing securities in a digital form can keep their company private and still be listed at regulated European trading venues.

For transactions occurring on trading venues after January 2023, the law will require the transfer to be recorded at a regulated CSD, so issuance networks should seek partnerships with existing CSDs or CSD direct licensing in order to issue securities qualified for MTF trading.

Nevertheless, the majority of secondary markets for digital securities would be OTC  (Over-The-Counter) markets, without the need for MTF licensing.

HighCastle welcomed participants to try out HighCastle's platform functionality following registration at highcastle.co and welcomes VCs to explore the potential use of HighCastle’s infrastructure to digitise shareholding in the portfolio companies, automate the investment process and enable the follow-on transfers and trading of private securities. Issuance and registry are free of charge for VC’s and Accelerator’s portfolio companies, accordingly under HighCastle’s  Equity Digitisation for Startups Programme.

About HighCastle

HighCastle is a London-based investment marketplace, which provides an end-to-end solution for the compliant issuance, offering, distribution, management and trading of private digital securities.

About Rise London

Rise London, the largest fintech co-working space in Europe. Rise London, created by Barclays, brings together a carefully curated community of forty FinTech companies, along with Barclays’ corporate clients and other experts, to work on Barclays’ customer and business opportunities to help create the future of financial services.

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