Bank giant Citi and Six Digital Exchange (SDX), the digital asset-focused arm in Switzerland’s most important stock exchange are together to tokenize non-public trading shares in a step to streamline a $ 75 billion market filled with PDFs and paper documents.
Citi will act as a custodian and issuer of tokenized versions of late phase, pre-IPO shares on SDX’s regulated blockchain-based central security depository (CSD) platform, companies said Tuesday.
Citi said the platform, which is expected to go alive in the third quarter, will exclude US investors, but otherwise global with a first focus on Switzerland, Singapore and other parts of Asia.
Private shares in high growth, venture -supported companies are a large and appealing subgroup of an alternative asset class appreciated in trillion of dollars.
Companies with valuations of a billion dollars and more remain private for a longer period as market conditions dictate delays in IPOs for many. This means that companies are looking for secondary markets to help investors and employees get liquidity. But there is an access problem and the transactions themselves are manual and cumbersome.
“The most notable feature of private markets is that there is no infrastructure, at least nothing scalable,” said Nisha Surendran, digital asset -utilized solutions to Citi Ventures, in an interview.
Investors typically face a scary set of PDF files and paper documents to get through, and the settlement of a transaction can take from five to eight weeks – a process that needs to be repeated when the investor wants to leave the position, Surendran explained.
“These investments are also hampered by the fact that they do not flow into investors’ wealth statements such as other public securities. Rather, they end up encapsulated in PDFs or paper documents or on other platforms,” she said.
While in recent years has seen many traditional financial institutions look at the tokenization of assets in the real world, the very early days of this trend saw lots of attention focused on blockchain-activated private markets, but with a little actually delivered.
SDX CEO David Newns said many hopeful web3 projects that saw blockchain rails as a way of streamlining outdated processes and enabling easy access and distribution for private markets came against regulatory obstacles.
“There is a very mature regulatory environment for digital security in Switzerland, where we have been doing this now since 2021,” Newns said in an interview. “That’s not the case elsewhere. Technology may have looked like it could tackle all challenges, but problems around distribution, keep the instrument, and what this instrument represents legally from an investment perspective, wasn’t really resolved.”
SDX’s blockchain-based securities departments are built on R3’s Corda Distributed Ledger technology. Investors gain access through the dematerialized securities legal construction in Switzerland via their broker and depot, Newns said.
“It effectively means they show up in your bank account in the same way a normal security does,” he said. “It doesn’t require you as an investor to do anything special to access these investment instruments.”
The announcement also marks that Citi becomes a custodian at SDX, a step that reflects the bank’s strategy to give customers access to new digital asset markets globally, including for private market assets, said Nadine Teychenne, Citi’s global head of digital assets, investor services and issuer services.
“This is part of a joined project across several companies at Citi,” Teychenne said in an interview.
Digital Asset Banking Group Sygnum and Singapore-based financial institution SBI Digital Markets will help with access to the pre-IPO shares that CITI will bring to the SDX platform, according to a press release.
Read more: Citigroup reveals token services to institutional clients
