Fintech Spotlight: Meet Archax, The First Regulated UK Digital Securities Exchange

In recent months, cryptocurrency attracted the interest of both financial institutions and government entities, evidenced by Goldman Sachs Group Inc’s GS move to reopen its cryptocurrency desk and Miami Mayor Francis Suarez’s push to make bitcoin a part of his city’s future.

In light of the demand for a regulated, institutional-grade solution to facilitate digital asset trade, Benzinga chatted with Simon Barnby, CMO at Archax, an exchange for asset-based tokens.

About: Archax is the result of what financial market leaders, like David Lester, a former head at the London Stock Exchange, see as a solution for mass adoption by institutions and governments.

The company provides a venue for all assets -- private equity, real estate, hedge funds, blue-chip companies -- to trade as tokens on a blockchain.

“The concept behind Archax is to build an ecosystem, starting with a regulated exchange, which is all about bringing the benefits of crypto, blockchain, and tokenization to the traditional financial markets space,” the CMO said.

“The team here -- we’re all ex-traditional financial markets people, so we kind of know that regulated institutional world well, and we’re trying to bridge the gap between the two.”

Regulation: Institutions -- pension funds, endowments, insurance companies, asset managers, hedge funds and corporations -- demand access to more efficient and liquid markets.

Why? It’s easier to assign ownership and trade assets, as well as settle transactions. You name it, everything from art to land, can be tokenized.

The most common problem? Credibility.

Institutions are used to working in a regulated environment and demand regulations that provide checks and balances; with regulations comes clarity, as well as measurable certainty.

After delays due to COVID-19, in August, Archax announced it became the first digital securities exchange, in the U.K., to become regulated by the FCA, alongside receiving crypto-asset registration.

“The regulation came through in the latter part of last year, in three parts,” Barnby said. “It’s our exchange license -- we’re the first and only firm, so far, to get regulated by the FCA in London. It’s our brokerage license, so we can face off to a broader cross-section of people, globally, and it’s our custody license.”

2021 Launch: This spring, Archax is planning to go live with its regulated exchange based and regulated in London, by the FCA.

“It is a global market for listing global issuances with global members; we have 40 security token projects lined up to list over the course of this year, and more approaching us all the time.”

“As long as the instrument is regulated, it can list on our exchange,” Barnby added. “On the member side, we’ve got around 18 brokers, about eight market makers for liquidity provision, and 1,300 signups on our website for people interested in trading.”

Near the middle of the year, Archax will launch crypto support, catering to renewed institutional interest in the crypto bull market.

“We’ve applied for retail permissions … we applied for our E-Money license, so that we can issue regulated stablecoins within the Archax ecosystem, which is something that will happen in the second half of the year, and we’ve also applied for our alternative investment fund management license.”

Innovation: Archax is looking to offer diversification through indexes and digital structured products.

“We’re working with some index providers to create baskets of index constituents,” Barnby said in a discussion on next steps. “Once we’re up and running, we also plan to help firms in the primary stage too. A lot of companies that come to us and say they want to list on a regulated secondary market like Archax, but need to raise some money first. We’re sort of putting together our primary platform so that we can help firms with the whole lifecycle.”

Listing: There are a number of reasons to raise money and run secondary market trading through Archax.

“If you look at the traditional IPO route, it’s an expensive process,” Barnby said. “We’re coming in at a lower level because the cost and obligations are lower.”

Listing through Archax is more flexible than raising funds through venture capital; tokens can be traded amongst investors, whereas in the traditional venture capital route, funds may be locked.

Outlook: Growth because it’s the future.

“It’s a better way of doing things,” Barnby said about the efficiency of blockchain. “If you look at the music business, that went from vinyl to CDs, to downloads, and all the way through to streaming -- the music is the same, but the way we consume it is different.”

Additionally, Barnby noted the company would look to global partnerships, as well as new lines of business.

“We’re looking at adding derivatives into the mix. We will have all that sort of building blocks in place to offer a prime brokerage … and banking service,” he said. “The beauty of this digital, blockchain-based technology is that you can do a lot of things that would have been really difficult and almost impossible to do before.”