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Fintech

Digital securities could drive additional liquidity to private equity

An SEC-registered transfer agent buying an SEC and Finra-registered broker dealer and alternative trading system may boost trading of private equity security tokens.

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At the end of October, tZero, the leading alternative trading system for security tokens, announced it had been chosen as the trading venue for a $300 million data infrastructure technology fund from Tynton Capital, a venture capital and private equity fund manager.

Once this offering is complete, it will be a sizeable addition to a still small and rather self-enclosed market in security tokens.

Securities token offerings (STOs) have replaced initial coin offerings (ICOs), which burst onto the technology investment landscape in 2017 and 2018 when blockchain-based businesses raised large sums by selling to investors utility tokens to use on their platforms.

At one point, subsidiaries of messaging app Telegram were on course to raise up to $1.7 billion from an ICO, until the SEC clamped down and ruled that these coins or tokens were in fact securities and should be subject to full securities laws.

Even before the Telegram deal, ICOs had raised more than $4 billion.

For the last two years, market participants have struggled to adapt their blockchain-based business models to legacy security market regulations. The SEC has allowed certain disclosure and other exemptions for STOs, but they have failed to attract the large sums that were briefly being thrown at ICOs.

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