ABE Unveils Master Plan to Reduce Average IPO Cost from $4.2 Million to $350,000 with Tokenized Securities
On March 6th 2019, ABE Global revealed a plan to bring tokenized securities to investors of new classes and locations. The strategy involves ABE Global’s multiple branches across the globe and depository receipts.
ABE Global to Launch Operations in Summer 2019
New security token trading platform ABE Global plans to launch during the summer of 2019. Last August, it completed a funding round totaling $3 million with participants including Distributed Global, Galaxy Digital, and Gumi Ventures.
Two of its three founders are Wall Street veterans. CEO John Pigott founded ValuBond, a fixed-income marketplace now known as BondPoint. It went on to become part of Intercontinental Exchange (ICE), the parent of the New York Stock Exchange (NYSE). COO Joel Blom was a member of the team that founded Thinkorswim, an online brokerage platform which was bought by TD Ameritrade.
ABE has recently announced their innovative strategy in making tokenized securities available to a wide-range of investors— meaning both investor status and investor location.
Initial Coin Offerings (ICOs) raised more than $20 billion in 2018, but ignored all fundraising regulations. Security Token Offerings (STOs) use distributed ledger technology to transfer the ownership of traditional securities in a compliant manner, but are typically confined to the limited audience of accredited investors.
Now, ABE is trying a third way, which has never been done before.
How ABE Plans to Increase Investor Access to Security Tokens with Depository Receipts
ABE will have a network of branches in different jurisdictions. Of primary strategic importance will be the branch in Malta. According to Blom,
“The regulators there have shown interest in supporting the new technology, they have educated themselves and they are really sophisticated about it.”
Right now, the Maltese subsidiary of ABE is in the process of getting a license which would allow them to list assets such as tokens, stocks, bonds, and “most legacy financial instruments”, says Pigott. All assets would be supported by a 24/7/365 trading availability.
Here’s where it gets interesting: other branches, including ABE Americas and ABE Asia, will offer the tokens listed in Malta as depository receipts (DRs).
DRs enable investors based in one country to access the stocks of companies listed in another country. They have been in use since the 1920s. An existing example includes the Chinese e-commerce giant Alibaba who trades American Depository Receipts (ADRs) on the NYSE.
With the multiple branches of ABE, token issuers can conduct an Initial Public Offering (IPO) through the Maltese exchange operated by ABE Europe. Those tokens will be listed as equity. Once the tokens are wrapped in depository receipts, they can be traded through the other branches of ABE’s marketplace.
According to Pigott,
“This enables token issuers to access current brokerage accounts with no change in custody, settlements and account holdings.”
According to PwC, the average IPO had around $4.2 million in costs throughout 2017. ABE says depending on the size of the startup, they can offer IPOs with costs between $200,000 and $500,000.
The Compliance of ABE’s Plan in the United States Explained
In the United States, ADRs are set to trade on ABE Americas, an alternative trading system (ATS) which has less regulatory requirements than national securities exchanges. ABE Asia will acquire equivalent or similar capabilities in Singapore, Hong Kong, and Tokyo.
Though the plan makes for an unorthodox use of ADRs, Margaret N. Rosenfeld— partner at K&L Gates law firm— says it’s certainly ‘doable’:
“It is conceivable that a digital security could be listed on a non-U.S. exchange and follow this route and it’s really a logical step in the evolution of our financing systems towards digital securities. This would require the ADR facilities to agree to the deposit and new forms of depositary contracts with elements specific to digital securities, as well as the exchanges and the SEC to sign off on this. Very interesting legal puzzles involved, but all doable. It would be exciting to work on something like this.”
Rosenfeld also highlighted how ADRs constitute financial instruments which only non-U.S. companies are eligible to utilize.
In order to issue ADRs, companies will need to first receive approval from the SEC. If the SEC should have any objections, Pigott says the DRs created by ABE will still be available in Europe and Asia.
A growing number of large enterprises are continuing to enter the security token space. One of the most recent of which was NASDAQ. The United States now has two security token trading platforms which are live and operational— tZERO and OpenFinance Network.
Blom isn’t phased by such competition, however:
“It’s not a good idea if you don’t see other people pursuing it.”
What do you think about ABE Global’s plan involving depository receipts? Will the strategy see success? Let us know what you think in the comments section below.
Image courtesy of ABE.
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