SINGAPORE (Nikkei Markets) -- A startup backed by the Singapore Exchange has received the green light to operate a trading platform for digitized securities, a move that could open the world of private equity and hedge funds to a much bigger group of individual investors.
Singapore-based ICHX Tech said it is now a capital markets operator recognized by the Monetary Authority of Singapore. According to the company, iSTOX, which uses distributed ledger technology to connect buyers and sellers, is the world's first central-bank approved trading platform for digitized securities.
iSTOX will cater to institutions as well as accredited investors in the city-state and provide related services such as custody and trading.
Oi Yee Choo, iSTOX's chief commercial officer, said two fund managers are keen to offer digitized products on the company's platform, which will likely serve around 200 investors based on their expressions of interest.
The central bank's nod comes eight months after ICHX was accepted into its "regulatory sandbox," which allows companies to experiment with innovative financial products or services in a live environment with a small group of partners and customers. During this period, ICHX completed what it claimed was the world's first issuance, custody and trading of a regulated DLT-based security on a single, integrated platform.
Currently, investing in startups as well as private equity and hedge funds is limited to companies, institutional investors and the wealthier customers of private banks because of the huge costs involved in serving smaller investors while meeting various compliance requirements.
But with the help of DLT, the technology behind bitcoins and other cryptocurrencies, various investment products can be converted into digital securities, making it easier for issuers to keep track of transactions and changes in their shareholding register.
Securities traded on iSTOX will be denominated in fiat currencies like the Singapore dollar.
According to Singapore law, an accredited investor has at least 2 million Singapore dollars ($1.46 million) in net assets or an annual income of not less than S$300,000 in the past 12 months. While this requirement still excludes the majority of retail investors, the bar is lower than the $5 million or more in assets under management usually required by private banks.
"While capital markets have seen many changes and innovations over the years, the underlying core infrastructure hasn't really changed since the advent of electronic trading decades ago," said iSTOX co-founder and chief operating officer Darius Liu.
Asked about iSTOX's relations with SGX, Liu said that while the bourse operator has helped in various areas such as operations and compliance, the startup is not obliged to refer deals to it.
He also declined to provide a breakdown of iSTOX's shareholding although he said ICH Group, the parent company of ICHX, remained the largest investor.
Besides SGX, iSTOX's other investors include Heliconia, a subsidiary of Singapore state investor Temasek Holdings that invests in fast growing companies, Japan's Tokai Tokyo Financial Holdings, Thailand's Kiatnakin Phatra Financial Group and South Korea's Hanwha Asset Management.
-- Kevin Lim