Global fintech and funding innovation ecosystem

Your Complete Guide to Security Token Exchanges

Neufund blog | Alex Molé | July 31, 2019

token up neufund - Your Complete Guide to Security Token ExchangesWelcome to the second edition of Token Up, where we analyze the emerging security token ecosystem, without the bullshit.

As you may recall, we spoke last time about the big picture: what security tokens are, the benefits they offer today’s outdated system, why you should care, and what the market opportunity looks like. Today, we’ll talk about a topic that’s been getting a lot of attention lately: security token exchanges. It seems with every week that passes, a new security token exchange is born. As liquidity remains one of the biggest roadblocks to widespread adoption of security tokens, this is both a welcome and important development for our emerging industry.

So what do we mean when we talk about liquidity, you might ask? Well in this case, liquidity refers to the relative ease and stability with which an asset (or token) can be bought and sold on the market.  Today, the security token market is characterized by an almost complete lack of liquidity, because there are few regulated security token exchanges currently in operation.  Just because a company decides to tokenize its shares doesn’t mean that anyone can trade those shares just yet. Don’t get me wrong ﹣ issuance is a critical piece of the puzzle, but in order for our burgeoning ecosystem to flourish the exchanges are a must. This is really important to understand, because liquidity is often stated as one of the biggest benefits that security tokens will offer vs. traditional securities. The key here is the future tense. While there are a lot of important advantages that security tokens offer on their own (many of which I discuss in my last post), liquidity is one that will only materialize when the forces within the ecosystem are working together﹣ startups, corporates, traditional stock exchanges and yes, regulators.

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The good news is that these forces are already hard at work. And there have been quite a number of developments this year that are worth mentioning. Perhaps what has struck me the most is the diversity of actors within the space. Not only are we seeing hopeful new entrants emerge or mammoth stock exchanges begin to adapt; we’re also seeing large corporates who most wouldn’t associate with either securities or tokens get in on the action, as well as established crypto exchanges seeking to incorporate new revenue opportunities as they target additional growth.

Best of all, there isn’t just one jurisdiction that’s leading the way ﹣in fact, while there have undoubtedly been a number of developments in the United States, I would argue that some of the most exciting progress is coming from Europe. This is thanks to a more stable regulatory climate, and perhaps a sense that tokenized assets represent a major opportunity for Europe to even the capital markets playing field once and for all.

The ensuing guide covers the following exchanges: Gibraltar Stock Exchange, OpenFinance Network, tZERO, Templum, SharesPost, Coinbase, Australian Securities Exchange (ASX), SIX Swiss Exchange, London Stock Exchange, and the Malta Stock Exchange.

So let’s take a look at what’s going on.

Gibraltar Stock Exchange

Gibraltar made headlines in October 2017 when GSX Group Limited, owner of the Gibraltar Stock Exchange, announced at the Hong Kong FinTech Summit the creation of a new subsidiary, the Gibraltar Blockchain Exchange (GBX). The GBX would aim to “create a new standard of excellence” by allowing only vetted, high-quality listings to be offered through its planned global, regulated marketplace for utility token sales. This feels like ages ago in crypto time: ICOs reigned supreme, and almost nobody was talking about security tokens or STOs, let alone setting up exchanges to trade them.


Around the same time as the GBX announcement, the GSX Group confirmed that it was also planning to revamp the Gibraltar Stock Exchange (GSX), which it owns, to become the world’s first regulated exchange for listing and trading security tokens. Though the news flew under the radar when it was announced, this was and is a very big deal. According to their white paper, GSX aimed to list tokenized securities by Q3 of this year, with trading of such security tokens to be enabled by Q4. It now appears, however, that this was wishful thinking: we learned recently that GSX will officially seek regulatory approval from the Gibraltar Financial Services Commission (GFSC) to list and trade security tokens, kicking off the process in Q1 of next year. While it seems that GSX will not make their original timeline, the overall point remains. The recognition of security tokens by an EU-licensed exchange is a major milestone for the entire blockchain community and one that we continue to watch closely.

OpenFinance Network

A number of interesting security token projects have begun to take shape in the United States despite the uncertain regulatory climate. One early-stage project that we’ve been following closely is OpenFinance Network (OFN), which claims to be the first US based regulated security token trading platform. Here’s what you need to know: OFN is a trading, clearing and settlement platform for alternative assets which combines a centralized matching system with a decentralized p2p settlement process. The platform went ‘live’ at the end of June after undergoing a few months of beta testing from early investors and partners. Well, sort of. On their Telegram channel the administrators clarified a major caveat: trading itself isn’t yet live. So, for now, all you can really do is register and complete KYC. You’d think they could just say that instead of making me sift through hundreds of messages on Telegram…

Even when trading functionality is live, the only token that users will be able to trade, at least initially, is SpiCE VC (a tokenized VC fund). Beyond that, the team has said that they expect Blockchain Capital (aka BCAP; another tokenized fund) to eventually trade on the platform, but haven’t given any concrete timelines. To be sure, the team is hard at work and has inked some notable partnerships (Polymath, Republic). They’ve also announced a listing pipeline of at least 130 security tokens with a combined market cap of more than $6B, but again there has been no indication when all of those tokens will actually be tradeable.

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A few more important points: While non-accredited investors can create an account on OFN, they won’t actually be able to trade anything until Reg A or Reg CF tokens are issued. As a quick refresher, Reg A and Reg CF are regulations related to private capital raising that were introduced by the JOBS Act in 2015 (more detailed explanation here). At this time, OFN has neither issued nor announced any Reg A or Reg CF tokens. The platform also requires the use of MetaMask, a popular browser wallet and interface, but which does not offer the level of security that many users demand.


Another interesting project coming out of the U.S., which has garnered far more attention than OFN due to the size of its parent (Overstock), is tZERO. To be sure, not all the headlines have been good: tZERO’s STO got off to the worst kind of start when it was announced first that the SEC was conducting an investigation of the company, followed by the filing of a class action lawsuit the next month. Legal issues aside, tZERO’s platform has the potential to be a major player in security token trading due to its current operational capacity, access to fresh capital and ambitious plans. Here’s what you need to know:

tZERO owns two SEC registered and FINRA Member broker-dealers: SpeedRoute LLC, a routing and execution firm, and PRO Securities LLC, an Alternative Trading System (ATS). The platform (demo here) consists of brokerage services, stock inventory management systems, smart order routing and 24-hour trading. Today, you can only trade traditional equities but development of a security token trading system is underway. Their infrastructure is impressive: the platform currently processes 15–18 million in traditional equity orders per day, and the company claims it is equipped to handle over 100 million orders per day.

In May, tZERO announced their intent to form a joint venture with BOX Holdings in which both companies committed to form an exchange for companies to list and investors to publicly trade security tokens. tZERO will put up the cash and the tech, while BOX will offer people and regulatory expertise. In June, both parties announced they had finalized the deal. The deal is of course subject to regulatory approval from the SEC, which is no guarantee. Assuming they get the green light, the venture will operate as part of BOX Options Exchange, which is an existing registered securities exchange in the U.S.

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A few days later, tZERO announced that GSR Capital, a Hong Kong private equity firm, would purchase $160 million in tZERO Security Tokens pursuant to the Simple Agreement for Future Equity (SAFE). In total, tZERO has raised $168 million in the form of SAFEs. Proceeds from the STO (which is still ongoing) will be used, among other things, to finance the partnership with BOX.


As we continue our America tour, I want to discuss Templum next. Templum, through its subsidiary Templum Markets LLC, is a platform for primary issuance and secondary trading of tokenized assets. Templum has decided the world needs one more three letter acronym (TLA), so instead of sticking with the term STO, they use Tokenized Asset Offering instead (TAO for short)﹣cool.

In February, Templum acquired Liquid M Capital, giving them access to an ATS and thus enabling a secondary market. With the ATS, Templum can offer liquidity for securities they tokenize and remain compliant with US security regulations. Having flown under the radar for quite some time, Templum attracted headlines in April when it raised $10 million from Japan’s SBI Group to finance the development of their trading platform and a planned expansion across Asia.

The platform appears to be live, but in terms of listings it looks pretty sparse. From their website, BanQu looks like the only company to conduct a TAO so far and BCAP appears to be the only secondary trade to have been completed. Like all U.S. companies trying to get in on the security token action, however, trading availability will be limited to accredited investors only assuming the TAOs are structured to comply with Reg-D (like the BanQu TAO).

One last thing: Templum recently partnered with CUSIP Global Services to bring standardized identification numbers to security tokens. For now, only tokens listed on Templum Markets will get the honor, but I can see this becoming standard practice across the industry. I love it when companies focus on the bigger picture, helping to advance the ecosystem at large. We are all in this together, after all.


I like to think of SharesPost as the hip grandpa. Founded in 2009, SharesPost essentially launched the industry for online private equity secondaries. The company now boasts a user base of over 50,000 accredited investors and has facilitated more than $4 billion of transactions in the shares of more than 200 technology companies.

Recognizing the massive opportunity that security tokens pose, SharesPost announced in May that it was revamping its existing ATS to facilitate secondary trading of security tokens﹣turns out you can teach an old dog new tricks. Then, in late June the company announced it has closed a $15 million Series C round led by LUN Partners and Kenetic Capital in order to further build out their ATS and expand into Asia. According to SharesPost’s CEO, the strategy is to create a unified, global marketplace for both traditional and tokenized securities of private companies.

If all goes as planned, SharesPost will launch the new trading platform sometime during 2H 2018.

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