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The Tokenist recently sat down with Bobby Brantley — seasoned business executive and co-founder of the MERJ Exchange — for an exclusive interview. In September of 2019, MERJ became the world’s first national stock exchange to list its own equity on the Ethereum blockchain through a tokenized Initial Public Offering (IPO). Brantley has worked in the financial services industry for the past 13 years, and also serves as Managing Director of subsidiaries and post trade infrastructure providers MERJ DEP and MERJ CLEAR. In the interview, Brantley covered a variety of topics including an update on the IPO, the criteria as to why Ethereum was the blockchain of choice, the relationship between traditional securities and security tokens, and plans for future projects.
The Tokenist: Earlier this year, MERJ Exchange became the first national exchange to list its own equity on the Ethereum blockchain. MERJ offered the world’s first tokenized Initial Public Offering (IPO), which was listed on the Seychelles Stock Exchange. Can you update us on the status of that IPO?
Bobby Brantley: The IPO is going really well. One key objective was to demonstrate the global nature of our offering by reaching as many people as possible. We passed the soft cap very quickly and now have applications from over 40 countries, which is a fantastic validation of our model. The IPO will run until the end of February and we are currently in talks with a number of really exciting strategic and institutional investors. We are looking forward to closing the round and moving forward with our new investors to capture the unique opportunity that we have in front of us.
The Tokenist: Due to the stringent regulatory requirements that securities must abide by, bourses have been extremely limited in what they can offer when it comes to digital assets. How did MERJ manage to receive regulatory approval for a tokenized IPO?
Bobby Brantley: The challenge for other bourses is not at the exchange level but when it comes to the post-trade infrastructure. Most traditional exchanges rely on central clearers that are not yet offering support for tokenized securities. MERJ is different because it combines an exchange, clearing system and securities facility, and we have regulatory approval to use all of this infrastructure to support tokenized securities. Our applicable laws and rules allow us to issue and maintain a register for tokenized securities on blockchain platforms, using protocols approved by our registry and depository entity, MERJ DEP. This gives us the ability to run the whole process – from end to end – without relying on the cooperation of any external operators. In terms of the offering process, nothing is actually that different as regards the regulations or processes for a tokenized security compared with a “normal” security.
The Tokenist: One benefit of tokenization includes larger pools of investors through globally connected markets that are open 24/7/365. Regulated offerings sometimes feature limitations with regard to investor eligibility, however. Which investors are eligible to participate in the MERJ IPO?
Bobby Brantley: In the US, we can only accept accredited investors who can invest via our US Custodian – Prime Trust. For the rest of the world, there are no restrictions; we have registered a full Prospectus and the offer is open to the public. Investors can apply directly to our web portal or via our network of members, partners, and introducers.
The Tokenist: Often times there is confusion over a regulated digital asset, such as a tokenized stock, and its relation to a traditional share in a company. How would you help in clarifying this relationship?
Bobby Brantley: We see them as the same thing. Our digital equities are treated the same in every way as the non-digital counterparts. We don’t change any of the characteristics: the rights, obligations, reporting requirements, etc, are all exactly the same. What has changed is the way we record and store data relating to them. We are confident that this approach will prove a big benefit in terms of attracting investors and creating liquidity.
The Tokenist: Some have criticized Ethereum’s scalability in terms of supporting future security token transactions, though it remains a clear leader with 94% of all STO protocols. What factors and considerations led MERJ to select the Ethereum blockchain?
Bobby Brantley: The answer is in the question! We are looking to connect to ecosystems that have global traction with issuers and investors. Ethereum is the clear leader. We are well aware of the scaling limitations and other issues such as the proof of work algorithm which does not sit very comfortable with securities laws and the concept of finality of settlement for instance. At this stage, we are not settling exchange transactions of securities issued on public Ethereum “on chain”, so this scalability issue is not an immediate concern of ours. MERJ has a regulated clearing and settlement system which allows us to support multiple blockchain platforms. Public Ethereum still provides an immutable, core global asset ledger and relatively efficient and compliant (via smart contracts) transaction capabilities between accounts and markets on chain. This is what we feel is the best use case for the short to medium term. We are also engaged with other blockchain platforms that might be suitable for on chain settlement and we may eventually move settlement on chain on one or more of these networks.
The Tokenist: Does the Seychelles Stock Exchange have plans for additional tokenized listings in the future?
Bobby Brantley: Absolutely. We have already listed a second listing and have a big pipeline of issuers in various stages of the process. We are also engaged with a number of potential partners that each have a number of intended listings. We provide a great solution for token issuers that are looking for a fully compliant secondary market.
The Tokenist: Lastly, given the significant disruption that blockchain technology is anticipated to bring to traditional fundraising, what do you think the IPO will look like in ten years?
Bobby Brantley: We feel strongly that this technology makes absolute sense for the securities industry. The way the biggest and most sophisticated securities markets currently operate is quite outdated: lots of independent databases being reconciled multiple times between organisations. Clearing and settlement takes days, and cash consideration can take days to clear through the traditional banking system. One trusted source of truth for the ownership of securities and seamless movement of consideration via stablecoins or digitized cash would make enormous sense for everyone in the ecosystem. We fully expect that this approach will be the norm in 10 years’ time, and we think people will look back at the MERJ tokenized IPO as the first page in a major new chapter for the industry.
What do you think about Brantley’s update on the world’s first tokenized IPO involving a national stock exchange? We want to know what you think in the comments section below.
Image courtesy of MERJ Exchange.