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FinClear launches DLT-based private-markets platform

FCX platform to create a de-facto second board to ASX by tokenizing ownership in private companies.



Dean Jagger and David Ferrall, FinClear

FinClear, a Sydney-based fintech that provides trading, clearing and settlement for listed companies, is launching a registry to support privately held companies – girded by distributed-ledger technology.

The new platform, called FCX, currently consists of a registry of shareholders in private companies that is built on proprietary DLT. The company is applying for a license to operate a market, which would complement FCX’s capabilities to support capital-raising events, be it of new shares or secondary-market sales. It will offer investors an app that serves as a wallet (account), giving users a real-time window into their cash positions and securities holdings.

“When someone puts money into a private company, they can see their money go through the entire process of execution, clearing and settlement,” said CEO David Ferrall (pictured, right).

Direct ownership

There are other companies building tech platforms to service private markets, such as Forge Global in the U.S., or custodial services such as State Street’s Mercatus.

FinClear’s offering is colored by where it operates: Australia, where a substantial part of the investor universe owns shares of public companies directly. FinClear is translating its experience of processing directly owned public shares to the private market.

In most geographies, investors who own shares of listed companies are not known to those companies unless they are institutions with substantial stakes. Companies see only omnibus accounts under the name of custodian banks, which in turn service their clients, such as fund managers and brokers, which in turn represent end investors.

Although that custodial model also exists in Australia, it mainly services large wealth-management platforms affiliated with big banks, such as Westpac-owned BT Panorama, or independent companies such as Netwealth which evolved to service superannuation funds. Big operators prefer to rely on custodians to consolidate and simplify administration and reporting.

However there exists a large segment of mid-tier brokers, financial advisors and private superannuation funds that do not use custodians. They hold shares directly using Holder Identifier Numbers, a database operated by the Australian Stock Exchange. HINs operate effectively as individual accounts for end shareholders, and sit alongside another ASX register for issuer-sponsored accounts (although custodians may also hold HIN accounts).

FinClear and Digital Asset

FinClear was founded seven years ago to automate trading, clearing and settlement to investors holding shares through HIN. Today it hosts about A$130 billion of securities on behalf of around 250 intermediaries representing close to 500,000 end investors. In 2021, it acquired the Australian operations of U.S.-based clearing firm Pershing.

Having grown this business for the regulated, public shares market, FinClear saw a demand among investors in private companies for something similar.

It also believes it can solve the problem of creating distribution from scratch – a high hurdle for other projects out to tokenize securities – by having a built-in investor base.

Dean Jagger, head of FCX (pictured, left), says the FinClear business also relies on funding from venture capital, private equity, and family offices. “Our investors tell us they need this solution. They have tens or hundreds of portfolio companies that they have to manage via spreadsheets.”

He adds that in addition to giving FinClear confidence that there is a viable business to serve private markets, these backers will also encourage their own portfolio companies to join FCX’s platform. While the majority of Australia’s estimated 1 million private companies are small family businesses, there are enough sizeable ones for FCX to scale.

FCX was built on a proprietary distributed ledger that is permissioned and private (the opposite of the public blockchains underpinning cryptocurrencies such as Bitcoin and Ethereum). The fintech turned to Digital Asset Holdings to script smart contracts, using its DAML language.

They selected DAML because it is the same language being used by ASX, which is in a long process to transition its back-office system, Chess, to blockchain.

ASX’s Chess replacement

That remains a controversial project in Australia, given years of delays: the Chess replacement is the most ambition attempt by any major financial institution to migrate to blockchain-based infrastructure, but implementation was scheduled for 2020, then for April 2022. Now it’s meant to go live in April 2023, but recently ASX executives acknowledged the curtains may not rise until 2024.

For ASX, the ambitious Chess migration is in keeping with a legacy of going electronic early. Although Nasdaq is the first fully electronic stock exchange, ASX has its own claims of glory. Nasdaq launched with automated quotes in 1971, while trading went fully online in 1998.

ASX had introduced electronic trading for options in 1997, having already launched Chess in 1993 as a clearing and settlement system for HIN accounts. In 1998, the year Nasdaq automated trading, ASX made its own innovation by demutualizing and listing its own stock – a move subsequently mimicked by many other exchanges.

Tokenizing private companies

Just as ASX views migrating Chess to the blockchain as another “first”, FinClear saw an opportunity to take these changes to the world that ASX can’t touch: private companies.

It has already taken a page from ASX’s history by tokenizing FinClear’s own equity and listing it on FCX. Now it needs to get licensed and tokenize the shares of other private companies.

If FCX succeeds – by getting hundreds of leading private companies to use it for registering their shareholders and becoming a venue for liquidity events – then it could naturally become a de facto second board to ASX, and a stepping-stone for private companies looking to go public and thereby accept retail shareholders.

Another way of looking at FCX is as a middle ground between the regulated world of public equities, and the unregulated, “wild west” of crypto.

Indeed, FinClear’s medium-term ambition for FCX is to eventually add new asset classes, or expand it to international markets, ultimately including crypto. The vision is to serve as a registry and venue for an investor’s entire securities portfolio, from crypto to private companies to public shares, all within the company’s app, riding its DLT rails.

Ferrall says FCX’s ambitions are in line with global trends to tokenize securities. He argues the HIN system is already a token-based system, but one built on a centralized database without smart-contract technology. “HIN is a digital share certificate,” he said. “Australia’s had digital ownership of shares for thirty years, way before tokenization on DLT.”

DLT and smart contracts means that the heavy-duty recordkeeping and reconciliation work of custodians and fund administrators can be handled through technology. FCX claims it can offer atomic real-time settlement and tokenization of securities, within its DLT environment.

(Atomic settlement means an instant exchange of two assets, in which the transfer of one asset is triggered by the transfer of the other – as opposed to the current two-day settlement time of cash and securities after a trade is made on ASX.)


This can bring efficiencies to private investors such as VCs in private markets – and eventually the same DLT-based execution, clearing and settlement can be adopted by the listed-securities world.

“Every investor should own their own securities, in their own name, on their own digital wallet,” Ferrall said.

FCX faces a number of challenges. One is regulatory: it has to secure the license to operate a marketplace. Another is trust, convincing enough corporate advisors and wealth managers to give it a chance. FinClear has built a business of processing transactions with traditional technology, but moving to DLT is another matter.

A third challenge is the tech: smart contracts have yet to prove themselves of being clever enough and flexible enough to always work, and to handle errors and clawbacks. A corollary to this is that ASX has struggled to get the Chess replacement off the ground, or to operationalize DAML for smart contracts. FCX is a closed environment, so it can change the software – but then what’s the point of a distributed ledger in the first place?

This also begs the question of how far FCX can grow. Because it is operating a closed ecosystem, it can expand so long as it makes sense for companies to tokenize there. These tokens won’t operate on other blockchains, and won’t easily communicate with smart contracts using other languages. Over time, questions of “interoperability” may be solved – or the world will fragment based on digital land grabs.

Getting the traditional world of listed securities – and decades’ worth of infrastructure built to support it – to move to DLT-based processing such as FCX is a long-term project, Ferrall acknowledges. Custodians are affiliated with some of the world’s largest investment banks and fear being squeezed out. But he believes they will come to support a transition.

“The big banks recognize that digital, directly owned, tokenized securities are the future,” Ferrall said. “They’re just working out how to monetize this.”

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