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Capital Markets

AMTD shareholder L.R. Capital invests in Sohu’s finance arm

AMTD and its affiliated $1 billion China Fintech Fund back Fox Fintech, the finance arm of internet portal Sohu.



Hong Kong-based investment bank AMTD has advised one of its shareholders, L.R. Capital Group, to take a stake in’s Fox Financial Technology Group, according to AMTD chief executive Calvin Choi. The stake size has not been disclosed but Choi described it as less than 10% of Fox’s equity value.

Another L.R. Capital-backed investment platform, the $1 billion China Fintech Fund, has also  participated in a the Series C round of financing in Chinese peer-to-peer lender

AMTD is at the heart of a group of companies connected by equity holdings that is forging a path into Greater China-related fintech. AMTD shareholders include L.R. Capital and China Minsheng Investment Group (CMIG). LR Capital and CMIG are also backers of the China Fintech Fund, along with GF Securities.

Fox Fintech is a peer-to-peer lender and technology solutions arm of Chinese internet company Beijing-based is one of China’s biggest internet portals, and is listed on Nasdaq; Sohu’s name translated literally into English is “search-fox”.

Fox was originally known as Souyidai, and got its start offering online loans in 2014. Fox/Souyidai’s accumulated transaction volume since launch reached Rmb20 billion ($2.9 billion) at the end of 2016, according to a company press release.

The company has since expanded into consumer finance, credit analytics, leasing and commercial factoring. Its co-founders, Alex Ho and Lin Zhou, announced their desire in a March 7 press release to turn Fox into an online integrated financial management platform.

“L.R. Capital’s investment into Fox FinTech allows AMTD to tap into Sohu’s huge network of contacts and connectivity,” Choi told DigFin, which will include financial services such as leasing, insurance brokerage and consumer financing.

These are meant to complement AMTD’s existing relationship with Dianrong as well as a strategic stake in, a second-hand car O2O (online to offline) company.

In August 2015, Dianrong raised $207 million from C-round financing, according to China Fintech Fund and Standard Chartered Bank were the lead investors. Tiger Global Management, Sun Hung Kai Properties and Northern Light Venture Capital are among earlier, smaller investors in Dianrong.

Choi describes AMTD’s fintech fund as a longer-term investor than normal venture capital. He says whereas major V.C. groups look to exit via sales to strategic buyers, AMTD uses its fund to stay with investee companies both to keep abreast of digital trends as well as be in a position to support these companies with advice and underwriting.

“If we do their IPO as their lead bank, we have a real insight into the company,” Choi said. “We can chart the money pockets, the buyers, and the money left on the table,” which he says helps a company tap investors that appreciate its value.

AMTD also leverages the connections and technologies in investee companies with its other business activities. “We use their technology as an additional component to other investments we have,” he explained.

In the case of Fox and Dianrong, Choi says there is no conflict of interest in having stakes in two P2P lenders. This is partly because China’s market is so big and fintech companies’ business models are still nascent.

“But we also see they are different types of companies,” Choi said. “Fox has a lot of potential because of flows of people, technology and connections from Sohu. Dianrong has leading technology; its founder [Soul Htite] developed the technology for Lending Club in the U.S. and brought that to China.” Last year, Htite told media that he hoped to list Dianrong in 2017.

For now, however, Dianrong is looking to use fresh venture capital to get into supply chain management using blockchain technology. It was the first Chinese company to join the open-source Hyperledger community developing blockchains. On March 9, it announced it was developing China’s first blockchain with FnConn, the fintech arm of Foxconn Technology Group. Their ‘Chained Finance’ platform aims to direct supply-chain finance to smaller borrowers. Foxconn (not to be confused with Sohu’s Fox) is the mainland arm of Taiwan’s Hon Hai Precision Industry, famous for assembling Apple’s iPhones.

Dianrong is also keen to expand its business outside of China, particularly into Southeast Asia and possibly Hong Kong. “The international market knows Soul Htite, and has been watching the company since day one,” Choi said.

Dianrong already has a partnership in Korea with Hanwha Group to create a joint venture offering Dianrong’s technology to develop online lending for Korean consumers.

Capital Markets

SEBA Bank, now live, prepares Asia opening

One of Switzerland’s two newly licensed crypto banks is about to enter Hong Kong and Singapore.




Sebastien Merillat & Guido Buhler

SEBA Bank is one of two institutions granted a license by FINMA, Switzerland’s bank regulator, to operate a crypto bank. Along with cross-town rival Sygnum, SEBA (based in Zug, outside of Zurich) is now able to conduct banking based on blockchain technology. Julius Baer is the first traditional bank to partner with SEBA, with more in the pipeline.

The bank went live in October with 15 beta clients, and fully operational as of November 4. It plans to open doors onshore in eight markets, including Hong Kong and Singapore, before the end of the year.

What’s this all about?

The investor

SEBA Bank is a spinout from a multi-family office run by Sebastien Merillat, who serves on its board of directors. (“SEBA” is a play on his name.) Merillat’s background is in industry and engineering. “I’m just passionate about technology and seeing how it will work,” he said.

His curiosity drew him to invest in Bitcoin, and while he liked the ideas behind crypto-currencies, he realized it would remain fringe without regulation and more user-friendly environment. In other words, it needed banking.

That led to him gathering a team including Guido Buhler, a veteran of Switzerland’s private-banking industry. Buhler is now CEO of SEBA Bank. He took on the project because he believes blockchain-based finance will integrate “finance” with the real economy of trade and services, in a way that doesn’t exist today.

The vision

“The transfer of value today is just about money, and money is just a measurement system that’s become the meaning of everything,” Buhler said. He believes blockchain technology will change finance’s relationship with the real economy because it makes it possible for actors to interact more seamlessly, eliminating many of the costs and wholesale operations that bloat the traditional finance sector.

For this vision to be realized, the blockchain industry must promote tokenization, creating a gigantic universe of digital assets.

“Bitcoin is tokenizing nothing,” which is why the crypto market cap today is a paltry $250 billion, Buhler said. He argues that tokenizing real assets could foster a $20 trillion market in five years – that’s the play.

But why? What will cause this eruption in tokenization, when use cases today still seem so tentative?

The hope

Most of it has to do with the efficiencies of digital assets, which eliminate most of the post-trade activities in classical finance, as new venues such as SIX Group’s SDX hope to demonstrate. And once that business case is clear, more digital assets will mean more collateral, which should boost crypto-based lending.

Another aspect is the trust of a blockchain, provided users are confident in the security of their private keys. That’s where a bank licensed by a respected regulator comes in.

“Digital identity is an excellent bankable asset,” Buhler said. Combine this with artificial intelligence to govern smart contracts, he argues, and crypto banks could create a global ecosystem that will mushroom in parallel to the traditional world of finance.

Buhler calls SEBA a universal bank, prepared to operate a balance sheet, trade in primary and secondary markets, manage both traditional and digital assets, and handle institutional and retail customers. It is a vision similar to other institutions building crypto financial institutions, but SEBA has the blessing of FINMA.

The users

For now, the only retail customers it can accept are employees of Switzerland-based blockchain companies. Its institutional clients – companies, banks, asset managers, family offices, rich people – can come from anywhere.

The relationship with Julius Baer will give the private bank access to crypto-currency and digital-asset trades, as well as to SEBA’s tokenization capabilities. Buhler says the two institutions will work together to develop products for Julius Baer’s wealth-management business. In turn, SEBA will enjoy trade flows and help spur adoption of digital assets among the private bank’s clientele.

SEBA is offering its customers a Mastercard-issued card and e-wallet, which provides debit, credit, account and prepaid services.

Buhler likes to talk about the broader role of blockchain-based finance. He believes its approach to digital identity can provide the glue to tie disparate elements in today’s world, from democratic political systems to the need for economic activity to become more sustainable and equitable. It’s this bigger vision, he says, that marks blockchain-based finance’s divergence from the current analog version.

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Capital Markets

Hong Kong offers crypto exchanges path to regulation

But the SFC’s Ashley Alder also declares war on bitcoin futures traders.




Ashley Alder, HK SFC

Ashley Alder, the CEO of Hong Kong’s Securities Futures Commission, is blazing a path to regulation for crypto-trading platforms.

It offers crypto exchanges a route to becoming licensed, provided they trade at least one virtual asset that is deemed a security. The SFC is therefore taking a huge step toward the institutionalization of digital assets, and giving some operators the chance to use a Hong Kong base to distinguish themselves globally.

At the same time, however, Alder said the SFC intends to take action against bitcoin futures operators, particularly those marketing high degrees of leverage.

“We’ve been concerned for some time about platforms offering virtual-asset futures contracts to the public,” Alder said on stage at Hong Kong Fintech Week. He cited these contracts for being extremely volatile, high risk, and difficult to value, all exacerbated when exchanges offer enormous amounts of leverage, and charges that some of these platforms engage in manipulation by changing trading rules during the lifetime of a contract. 

Alder says the SFC will go public with such risks, and warned that those who offer bitcoin futures may be in breach of the Securities Futures Ordinance or the Gambling Ordinance – in other words, engaging in criminal activities.

OKEx has been one platform accused of changing its trading rules mid-contract, according to the South China Morning Post.

Path to licensing

But the big news from Alder is the decision to legitimize those crypto exchanges that can meet the SFC’s traditional compliance requirements for brokers and market operators, opening the possibility they can receive a Type 9 license for exchanges.

Some crypto exchanges hailed the move. BC Group called it a “watershed moment for financial services in Asia and institutional adoption and trading of digital assets.”

Worldwide, the only regime for requiring licenses for crypto exchanges is the state of New York, which in 2014 issued its BitLicense for any entity carrying out virtual currency activities in the state or for New York residents.

Circle, Coinbase and Square are among those license holders.

But what Hong Kong is doing is far more ambitious. First of all, the SFC does not recognize bitcoin as a currency, but it acknowledges the existence of a broader realm of digital assets that is rapidly permeating the traditional world of finance.

The Libra catalyst

It was Facebook’s June announcement of its Libra project, the most prominent of stablecoin ventures, that really galvanized the SFC, however.

“These [stablecoins] claim to have a mechanism to stabilize their value by backing a virtual token with fiat currencies, commodities, or a basket of other crypto assets,” Alder said. “They not one hundred percent stable, but they are in contrast to a crypto asset such as bitcoin which has no intrinsic value whatsoever,” which is why bitcoin and other alt coins are volatile.

Libra has lit a fire beneath central banks, financial regulators and politicians, because Facebook’s reach means Libra can be adopted globally very quickly. Although the consortium backing Libra has since lost prominent members, Alder said, “The Libra project has at least galvanized regulators across the world to look at the opportunities and the risks in digital assets. That is a complete change from the relatively relaxed attitude of last year.”

Instead, officials around the world realize they need a coordinated response involving many domestic authorities responsible for financial supervision, consumer protection, privacy, data, anti-money laundering and other functions – not to mention an international coordination.

“Libra and similar ideas have raised such fundamental issues about the digitalization and potential privatization of money that they’ve already inspired the beginning of a new global, multilateral approach,” Alder said.

The SFC’s plan

So the SFC is taking the initiative to generate progress on creating a structure to regulate crypto exchanges. There are dozens of these operating in Hong Kong; because there’s been no regulation to date, they all operate beyond any investor-protection compliance.

At last year’s Fintech Week, Alder announced regulation for brokers and fund managers, but this excluded the platforms where most people go to access or trade virtual assets.

The SFC is releasing terms and conditions for exchange operators to meet the traditional standards for trading venues around custody, market manipulation, KYC, AML and insurance, along with guidance on fitting these to blockchain, hot and cold wallets, protocol forks and airdrops. 

But the new rules will still leave gaps, which require new legislation to address. Platforms that totally avoid listing or trading securities tokens can continue to avoid regulation. Nor will the SFC have the authority to take legal action against operators for market misconduct if they remain outside its supervision. “Essentially it’s a framework allowing a platform operator to opt in to regulation,” Alder said.

“This is just an interim measure…The game-changing proposals involving stablecoins are likely to be a catalyst for accelerated thinking on a globally consistent set of regulatory expectations.”

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Capital Markets

What Citi Ventures’s incubator seeks in Asia

Victor Alexiev, the regional lead at D10X, talks about the technologies transforming institutional business.




Victor Alexiev, D10X

Victor Alexiev is Singapore-based Asia-Pacific lead for Discover 10X (D10X), the new product incubation arm of Citi Ventures. He joined in 2018 and now covers incubation, programs and strategic partnerships for Citi’s institutional clients group.

D10X launched in the U.S. in 2016 to foster innovation from within the bank, encouraging lean-startup thinking as well as coordinating third-party build, buy or partnership decisions with other parts of the bank and its clients.

The following is a transcript of an interview with DigFin, which has been edited for style and conciseness.

DigFin: What kind of innovative models are you trying to develop?

Victor Alexiev: In Asia, it’s about new products and new services in the ICG [institutional] part of the franchise, so the projects we work on are mainly B2B and B2B2C. We’re not just looking internally. We also try to partner with technology companies as we find pain points they address.

What kind of business models are you looking for in this region?

Finding solutions for Citi’s markets, commercial and investment bank business.

Why not for the consumer side, which is such a big part of Citi’s P&L?

We do have D10X in our consumer business for North America, but not in Asia, at least not at this stage. In Asia, consumer fintech and quite fragmented and competitive, and my personal view is that you will need to put in a lot more resources in order to achieve meaningful results.

Is innovation within a huge bank, particularly if you’re focused on B2B – is that an oxymoron?

Yeah, a lot of people think that innovation with corporations is too slow. It’s true in part, as we have to go through a lot of compliance, sourcing and H.R. checks. But we’re looking after companies and people’s money. But once you identify a product fit, you scale much faster. I’m here to build something meaningful within a large institution that has a global footprint.

Within B2B, what kind of ideas are you looking at?

Most projects are new models of customer engagement. Our most public project that was built and rolled out via D10X is Proxymity, an end-to-end proxy voting platform offered to custodians, that directly connects issuers and investors in real time.

Customer engagement sounds very, um, consumery.

A lot of corporate and institutional business platforms for banks is clunky. Or it’s based on business models that just seek to skim basis points by processing large volumes. What will next-generation banking look like? What happens if banks become platforms for others to create value? What do direct-to-consumer models look like for our transaction or investment banking?

So even at the corporate level, you need better customer engagement.

That’s right. For example, an increasing number of clients want to consume our products via an API instead of calling our salespeople. We’ll still need salespeople but we have to be realistic that our evolving client expectations demand a different experience.

What does engagement mean? Can you give me an example?

We’re finding, for example, that buy-side clients are less interested in reading a full research report. But they’re very interested in parsing the underlying data that made that report. Decisions are becoming more quant-driven, so we don’t need to offer as many products. It’s about helping our clients make data-driven decisions and providing them with data-driven products

Is that just a matter of better product design?

No, it means we need to transform the entire organization, to be an end-to-end digital driver – “customer engagement” can’t be just about our front office. “Digital” is about culture and people.

I often hear about banks changing their culture, changing the ways they do business, the mindset – yet the rhetoric doesn’t describe the reality. At best it’s a partial change.

There’s an increasing urgency within banks in general. Margins are thinning, and there is a realization, or a willingness, to transform. We’re trying to speed up the process by providing examples of what “good” looks like.

Where have you implemented new solutions so far in Asia?

Initially we rolled these out in our markets and securities services business. We focused on custody, securities services, equities, and foreign exchange. Gradually we’re bringing new technologies to spread products, corporate banking, investment banking and transaction banking. 

And within those divisions, what parts of Citi are you focused on? Operational efficiencies?

Efficiency is important but lots of departments are already looking at this. I also see at other banks a lot of innovation labs doing proof-of-concepts that may not reflect the actual business needs. The projects I work on all have separate, independent P&Ls, and are focused on client-centered new value creation.

You had mentioned client engagement at the institutional level. What are your clients asking help with?

Long-only funds want data to help them with things like modeling ESG portfolios (for environmental, social and governance standards). More short-term trading clients want data-centered models to take faster data-driven decisions.

We explore questions like what do next-generation pension funds look like? What about insurance? How do we support sovereign funds in managing impact-oriented portfolios?

You’re not big on blockchain consortiums and such?

We are, if it meets business needs. We participated in Komgo, a blockchain consortium for documentation in letters of credit that finance commodities trades.

What are the particular technologies that you’re trying to adopt?

Machine learning, APIs and blockchain are the three deep, transformative domains. For these to flourish requires a bigger internal transformation, a broader regulatory understanding of them, and a cultural mindset change.

That’s a lot. Any anecdotes you can give, to make that a little more concrete?

We’re about to publish with ASIFMA a white paper on STOs [securities token offerings] exploring what it would take to make these go mainstream. Our takeaway was interoperability. A fintech can issue a real-estate token, say, in their local jurisdiction, operating under the same local regulation for securities or property. But how do you open that to international investors, or institutional investors, or create a global marketing capability? The complexity quickly goes up. The same goes for, say, using A.I. with certain clients for real-time pricing and execution of F.X. or overnight collateral. What does that mean, how could it change the market? We’re exploring use cases, doing experiments – to do it right, we have to get out of the lab.

Are you finding lots of B2B technology companies in Asia who fit into these needs?

There are few startups that are enterprise-ready, globally scalable and that could deal with our clients. They need to be either close to the customers – meaning they already have insight, client integration of lots of data – or have differentiated tech that it is scalable, high performance, and can help banks solve specific problems.

But I’m bullish on tech in Asia. We’re seeing the dawn of Asian tech: the technology itself is maturing as companies shift from copy-and-paste to developing more core tech. And we’ve seen more B2B fintech move from trying to compete with us to partner with us.

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AMTD shareholder L.R. Capital invests in Sohu's finance arm