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International Exchanges Take
Center Stage at Security Token Industry 


 

Adam Chapnick

Programming Director, Security Token Academy

Adam Chapnick is a globally recognized serial entrepreneur known for disrupting long-established industries with tech-supported new-model approaches. He’s an active consultant to tech founders on strategy, operations, and financing.

Adam founded Distribber.com, the flat-fee VOD distribution service that empowers content creators to distribute their work like a major studio. Filmmakers keep all rights, and get all their revenue.

Adam has proudly served on the Board of Directors of the International Documentary Association since 2009.

A prolific thought-leader on rewards-based and equity crowdfunding, Adam has presented on the subject at hundreds of events around the world and in dozens of verticals since 2010.

He was a Principal at Indiegogo, which he helped build into the world’s largest crowdfunding platform, with over 200,000 campaigns, users in over 175 countries, operating in multiple languages and 5 currencies.

Adam is an advisor to the Los Angeles Area Chamber of Commerce’s Technology and Innovation division, and is embedded with their Entrepreneur In Residence program.

He lives in Los Angeles with his wife and two daughters, is an avid sand sculptor, and sings when others wish he wouldn’t.

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Alex Molé

Investor Relations Manager at Neufund

Alex Molé is the Investor Relations Manager at Neufund, where he is responsible for developing and maintaining the company’s shareholder and token holder relations. As part of his responsibilities, he spends time analyzing the security token market and industry participants. Alex was most recently an Associate at J.P. Morgan in New York City, where he played a key role in the strategy, design and execution of You Invest, the firm’s new digital investing platform. Alex worked in this role for two years after transitioning from J.P. Morgan’s Global Clients Group, where he helped manage the firm’s private client relationships across Europe, the Middle East, and Asia. You can find him on LinkedIn, Twitter and Medium.

LinkedIn    |    Twitter    |    Medium    |    Company

 

Cliff Pace

Head of the Malta Stock Exchange Fintech Accelerator Programme

Cliff is the Head of the Malta Stock Exchange Fintech Accelerator Programme. He is also the Director of Studies of the Malta Stock Exchange Institute, the educational arm of the Exchange. He has been employed at the Exchange for 7 years, having also held roles as Head of Business and Product Development and Head of Compliance and Market Operations. Cliff comes from a very long career in Financial Services and has a Henley MBA amongst other academic qualifications.

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Transcript


 

Adam Chapnick:

So, we are talking about exchanges, so why are exchanges important, let’s start up at that level and then we’ll drill down.

Alex Molé:

Yeah, so hi everybody, good morning, thanks for having us. I am excited to speak about Neufund and the landscape for international exchanges as well as our partnership with Emera Stocks. I think exchanges are important because everybody is been sort of alluding to this term this morning and last night on the boat is this idea of liquidity and there are a lot of sorts of issue and supply of forms that have come about in both the US and globally, and I think that’s great there is clearly a demand for regulated token offerings, for legally binding token offerings. But in order for this ecosystem to really flourish we need these exchanges in order to enable liquidity and in order to enable people to be able to transact in these securities that they are purchasing and so today, we don’t have really exchanges that are equipped to or I should say until, sort of this evolution that’s come about, we didn’t have exchanges that were equipped to handle security tokens and as this demand has popped up, the need for exchanges to come online, to be able to handle these tokens has grown even stronger.

Adam Chapnick:

So, what is necessary for an exchange to be able to be equipped to handle security token? What didn’t they have? What do they have now?

Alex Molé:

Yeah, so I mean, would love for you to join in with respect to our partnership, specifically I think in the US there’s this idea, the alternative trading system and that needed to be both revamped from a technological stand point like shares posts as an example, had to revamp or is revamping their ATS in order to be able to integrate security tokens. But there’s also the regulatory approvals that need to take place in the US and they’re different in Europe and in Asia and I think that’s an important thing to remember here as well. And from a regulatory stand point you need to ensure that KWC and AML are embedded into that token that you are trading because that is a very, very, very important aspect of having regulated token offers.

Cliff Pace:

Thinking on what you just said Alex Molé, first my name is Cliff Pace, thank you everybody for having me here. I come from the Malta stock exchange, anybody that is no familiar with Malta we are a tiny island just south of Sicily which is just south of Italy, population 424,430 so we are pretty much like a small city, but we are an island republic member of the EU and economically and as a country we live pretty well, as an exchange I think we need to go back to basics, you ask what does an exchange signify? What does it bring to the table?

Adam Chapnick:

Yeah.

Cliff Pace:

I think if you look at the basics an exchange really does bring players to the table in an area, in an environment which has transparency, which has certainty, which has regulatory frameworks, which allow people to get onboard knowing what they are going to be doing, knowing why they are going to be doing it essentially to some extent, I hope and really just knowing their position in terms of a legal framework. And therefore because you are talking about an exchange which globally, the term is not going to really change very fundamentally.

You went to talk about an exchange which is going be to operating in the US and the EU, you know far east, they all build on the same principles, transparency, regulatory frameworks, everybody getting in with their eyes pretty much as open as they could be or they should be and therefore that would create harmonization which is going to happen in a global environment. Because, once you are talking about money when you are talking about movement of capital in a traditional sense you still need that level of harmonization between exchanges, between different jurisdictions so that they speak together and they draft it. That’s in principle.

Adam Chapnick:

Right.

Cliff Pace:

When you apply it to the crypto and to the token, token structures, etc. What we are trying to do together with Neufund as well as others is come up with structures, which are going to build on the new regulatory structures that you have been putting to place in Malta, for those who don’t know Malta is the first country to actually legislate and to have regulatory structures, which are going to cater for exchanges, digital assets, virtual assets I mean, and also the structure and which this can be brought to market and so still in its infancy, this was only in active law in July, so really it is very, very fresh.

What we have is the technology, which has been really rushing and doing 100 miles an hour, you know in all sorts of directions because everybody is looking for their little space and their little niche and how to create something, which is going to work and they’ve done because obviously the sounds systems are clearly working. But you have the regulatory structures, which are trying to catch up and at the moment and I think in terms of the business side and I think we need to look at the business side, the techies are really working on the structures in terms on how they work technologically but then we need to ensure that the business part of things is also going to cater for the need of the investors as well as the issuers.

Adam Chapnick:

Right, okay so that’s a lot.

Cliff Pace:

Yeah, that’s a lot, I know. Okay I think I am going now.

Adam Chapnick:

No, no, Goodnight. So, you talked about regulatory certainty but you also talked about the importance of interoperability.

Cliff Pace:

Yeah

Adam Chapnick:

And then you also said that you guys are the first ones that have regulatory certainty. So, how is that going to work? If we don’t have anybody else that has regulatory certainty, do we have no interoperability yet? And when is that going to happen, and can it happen?

Alex Molé:

Well I Think there’s a difference between technological interoperability.

Adam Chapnick:

-Right.

Alex Molé:

And.

Adam Chapnick:

-No regulatory

Alex Molé:

And regulatory…

Cliff Pace:

Acceptance.

Alex Molé:

So, I think what you are alluding to is that you know we are sitting here in the US and there is clearly a great of demand and interest in the space but there is not regulatory certainty in this country there’s not any legal sort of definition of what a dow is or virtual financial assets in this country and I think part of the reason why Malta has had such success with the jurisdiction is because they have brought certainty to the table in a way that companies have been craving for.

Adam Chapnick:

Absolutely.

Alex Molé:

And so, you’ve seen some of largest, largest companies in this space financed Neufund as well as OKX and other great companies in this space that have latched on to this because it’s such an absolute necessity.

Adam Chapnick:

Right.

Alex Molé:

So, I think from an interoperability sample you can still certainly have that, it’s more a question of which jurisdictions are going to evolve. Which jurisdictions are going to recognize that the regulatory measures need to catch up with the technological progress that we are seeing globally.

Adam Chapnick:

Yeah, and what’s the answer to that, which jurisdictions are going to do that? Anybody know?

Alex Molé:

I mean.

Cliff Pace:

-I’d like to say that Malta will be around in a few year’s time.

Adam Chapnick:

Yeah.

Cliff Pace:

And still be one of the leading jurisdictions. I believe that, we have the vision, and I believe that we have the means and the networking, as well as our own operating structures to be able to get this and carry on with it and run with it. As an island, we were one of the first, as a jurisdiction of an island, to actually grab this with both hands and legislate and everything- we’ve got the support of the local government who are really the drivers in this particular area because they did see that this is an opportunity for Malta to put itself on the map in this particular area.

Adam Chapnick:

Are there different strategies among exchanges internationally that are worth mentioning?

Alex Molé:

Yeah, I think there is some interesting progress going on, the London Stock Exchange is partnering with the few UK startups to issue and tokenize equity in a regulated manner. The Australian’s security’s exchange has been working on DLT more broadly and integrating that into their clearing and settlement system since 2015, though their technologist I guess moved quite slowly because their targeting a role out in 2021 or 2022.

But I think also it’s interesting going back to this topic of different jurisdictions is the Monetary Authority of Singapore recently came out and said that every utility token they have seen is not a security in their mind. And they publicly stated that they expect to veer quite significantly different from the SUC, and so I think a lot of jurisdictions outside of the United States view security tokens as an opportunity to catch up with the United States, in terms of the broader capital markets infrastructure. And while you’ve seen some willingness, and Adam Chapnick, I think allotted to this in his address earlier this morning, some willingness from the SUC chairman, a recognition that these laws are outdated, and they need to change. I think things move a little bit slowly, more slowly here,

Adam Chapnick:

Yes.

Alex Molé:

Because there’s already this established environment for capital markets whereas the other jurisdictions see that as an opportunity to catch up, and I think are capitalizing them. Malta being a pre-eminent example.

Adam Chapnick:

Yeah, no doubt.

Cliff Pace:

I would take a little bit past a bit further and I first mentioned it to you earlier on. Today we have two caps, if you like. We have the traditional capital market, traditional financial service sector, traditional way of doing things, and we have a new way. And at the moment they’re not actually talking to each other really well, they’re certainly speaking different languages.

I would say, fast-forward a number of years, now how many of those years there’s going to be I don’t know, but I think it’s going to be a matter of when, not if, we’re going to have a structure where the financial service’s sector is going to be using DLT, is going to be embracing the new tokens, in terms of a form of digital asset, is going to be looking at new operating technological structures, but we do need to have certainly, the legal certainty, we’re just going to have to have the regulatory structure to support this to work. If we don’t have a regulatory structure, which is going to support the way these new services are going to be operating then you’re going to have confusion.

Adam Chapnick:

Is one of the fundamental issues this whole utility versus security token definition? Is that as fundamental as you see in news at least? In other words, there a lot of sort of…

Alex Molé:

Sorry

Adam Chapnick:

There’s a lot of intuitive definitions, so that can’t be a security and yet people are declaring that everything must be, and is that one of the tensions that’s…

Cliff Pace:

I think that’s a fundamental difference between the US and EU. The US is clear to saying if it’s a token, it’s a security.

Adam Chapnick:

Yep

Cliff Pace:

And that’s it. No argument. Our point of view is, one looks at utility and if it is a simple utility-type of token then it’s one definition, if it is store value which is going to be x-ray and etc., then it’s going to be a different thing all together.

Adam Chapnick:

And is Malta doing what Singapore is doing? By sort of recognizing the utility of tokens as their own thing.

Cliff Pace:

Yes absolutely, so we will look at the security token, we will look at the underlying and we will say, okay is this an investment? Is this a security which is going to be traded, etc., or is it something that is just a mechanism? Which is not necessarily a security.

Adam Chapnick:

Is there somewhere someone can look up what you guys define as a utility versus a security

Cliff Pace:

Right, our legislation is public, so this is actual law. This has been enacted into law last July, following consultations by the regulator etc. And the regulator has also worked very closely with private entities such as lawyers and accountants etc., to make sure that the regulations once they were actually enacted into law was something that was actually going to make sense and be practical. Because very often you get legislation coming in and then when you actually put it into practice you find there’s a bit of a differential gap.

In this area, I think there’s been certain amount of, quite a significant amount of consultation and input from different parties. And yes, the law is there, it’s public. There are three legislative structures, and I’m not going to go into the details over here but certainly a virtual financial asset is defined into what it is, what it’s supposed to do.

Adam Chapnick:

Terrific. I want to shift and hear a little bit about what heck is Neufund?

Cliff Pace:

Yeah

Adam Chapnick:

You guys have a lot of things going on. Your hybrids, you’re very interesting and unusual.

Alex Molé:

Yeah, it’s split way too because we’re talking about sort of the difference between security and utility tokens, regardless of sort of the legal definitions or the way that different jurisdictions come down on this. I think there’s still very clearly a ton of demand from investors standpoint that utility tokens are great for their purpose, but investors want to own securities, they want to have shareholder protections that they’re used to.

Neufund, our core business, is a primary office marketplace for tokenize securities. So we structure equity tokens, in the initial phase we work with equity tokens, we’re certainly open to tokenize funds and real estate and other asset classes in the future. We structure legally binding and regulatory compliant equity tokens and issue them under German jurisdiction. And our platform is both, we are a protocol as well as a platform- we bridge both the on-chain and the off-chain worlds. Our community is composed of both those from the crypto community as well those from the traditional finance community and part of the reason for that is because both these parties, although they may seem at odds in some way, they all have the same craving and again, going back to this idea, they want the shareholder protection.

So our platform enables issuers on the one hand to come and raise capital for their companies and investors to invest in those offerings and to know when they invest in those offerings that they can take, they can go to a court in Germany, should a company, should there be some type of dispute resolution that’s necessary at a certain stage- they can go to a court in Germany and they can exercise their shareholder protections. And that’s something that doesn’t really exist today when we think about the crypto landscape and I think that’s why it’s really important what we’re doing and our work with Malta is meant to say, let’s take these security tokens that we’re issuing and let’s give them room to run, let’s give them an ecosystem to be able to flourish and so issuing platforms are great, they’re important, but again, it’s the liquidity, it’s the exchanges, it’s the marrying of those two worlds that needs to come together for this whole ecosystem to flourish.

Adam Chapnick:

Yeah, so amen brother. So you do something also very fascinating that maybe you can explain- you generate a platform token for investors, is that how it works?

Alex Molé:

Yeah, so we’re a decentralized and community-owned platform. And when I say that, I mean investors who invest through Neufund, they are also economic co-owners of our platform. So Neumark, which is a play on the old Deutschmark, is our protocol token and every time you invest in an ETO, in addition to receiving equity tokens in company that you’re investing in, you’re also receiving Neumark, our protocol token, as a reward additionally on the side. Neumark is an incentivization scheme, so then early adopters of our platform are rewarded with more Neumark, than those who, sort of join the party later. And as we get to one and a half billion of capital that’s raised on our platform then that would be the totality of the Neumarks that are issued once we get to one and half billion.

In the earlier stages, that reward is higher like I said and the point of doing that is to say, is to give- is to create sort of natural incentive scheme for people to want to invest using our platform because not only are they receiving equity but they’re also receiving a liquid and tradable utility token in our protocol token and I think that’s very different and some of the other issuing platforms, particularly those that are here in the United States, and I think it’s one of our core differentiators and so when you actually hold our Neumark, you receive a portion of the fees of every company that conducts a ETO, an equity offering token on our platform. So there’s a 3% fee charged to issuers in the form of capital raise and that’s either ether or euro.

Investors can either invest in ether’s or euro on our platform and a 2% fee of the equity tokens that are generated- that’s charged to an issuer. When those fees are charged, they are then distributed 100% to all Neutoken holders. So Fifth Force, the company that I work for- that pays my paycheck, is a Neutoken holder but everybody else who uses our platform is also a Neutoken holder.

Adam Chapnick:

Okay, so Fifth Force.

Alex Molé:

Fifth Force, GmbH.

Adam Chapnick:

Okay, there’s a new name, does Fifth Force do anything other than Neufund?

Alex Molé:

No, we are the legal

Adam Chapnick:

Okay.

Alex Molé:

Just the legal entity behind it.

Adam Chapnick:

Got it, okay, just checking. So you said the early token holders of the Neumark get more, the later investors get fewer, are we early or late now, if I started am I late or am I early?

Alex Molé:

We’re early.

Adam Chapnick:

I’m early?

Alex Molé:

Yeah.

Adam Chapnick:

This is the first time. This is exciting.

Alex Molé:

Yeah.

Adam Chapnick:

Okay, great.

Alex Molé:

And we’ll be having some very, very exciting news to share shortly with respect to

Adam Chapnick:

I’m just going to call my wife, really quick and let her know.

Alex Molé:

ETO’s will begin in Q4 of this year on our platform.

Adam Chapnick:

Amazing. So what’s the nature of your partnership or collaboration with Malta?

Alex Molé:

(crosstalk)

Cliff Pace:

Essentially, we as an exchange, we are a domestic exchange, so we have multi-issuers but only to the government of Malta but have 50 organizations, which are admitted on to the regulated market, and we have our own SME market- the growth market. Looking at this space, we see, we and obviously our shareholders see that this is going an interesting year to begin. Now, we can either just ignore it and see what happens, wait for the dust to settle and then maybe join as some other jurisdictions are doing perhaps, but we took the strategic field to say, okay we would like to be involved in this, what do we bring to the table? We don’t bring the technological side, we obviously have colleagues who are able to do that much better than us. We do bring the structure, we bring the reputation, we bring the jurisdiction behind us. Obviously, as an exchange we have our ideality and other anti-money laundering processes, and those support structures you would need to be able to operate an exchange, even if it’s a digital exchange, especially in the new world where we have full transparency and etc.

And hopefully we will end up in a situation-fast-forward sometime, where we would be working with chosen partners to collectively make the systems actually work in real life situations. And we would have legal certainly where we have invested confidence and that’s very important because at the end of the day you need to have invested confidence to be able to get on to these platforms and take that bold first step

Adam Chapnick:

Of course

Cliff Pace:

And I think that having legal certainty and having the structures, and the face, a face-not in terms of a human face, but a face as in a corporate face which has obviously its own reputation, its own history. Something that people would, I hope, want to rely on in order to get them to make the first move.

Adam Chapnick:

In your work to set this up, were you in conversation with other jurisdictions and to figure out if you wanted to do it together or anything like that?

Cliff Pace:

We have an approach by jurisdictions to see, do we want to work with you or not, etc. We felt and still feel that we have the regulator on our side in this area. The regulator is certainly the groundbreaking as the pioneer in this area and we follow the regulator’s step to follow and we see where that takes us.

Adam Chapnick:

Any idea of who’s following behind you for us all to see?

Cliff Pace:

Some jurisdictions, which are looking to do this Eastern European, there’s Estonia for one. We’re looking at it, London as well.

Alex Molé:

Gibraltar’s working on a similar initiative as well. And I think that just goes to show that again, there’s a great deal of interest in this space and a great deal of jurisdictions that want to be a part of it.

Adam Chapnick:

Yeah, no doubt. So, what do you predict for this security token ecosystem- how’s it going to look, I mean people thought that this might be the year of the security token, now we’re kind of toward the end. Is 2019 going to just be the explosion, the hockey stick, of security token implementation uptake?

Alex Molé:

I’ll go ahead. I think we’re certainly going to see even more growth in 2019 than we seen in 2018, I think it’s really important though to avoid this sort of grandiose claims that everything under the sun is going to take place in one year’s time.

Adam Chapnick:

Right.

Alex Molé:

And just recognize that this is a major, major evolution and it will take years for it play it out, and it will take years for regulators to wake up and some jurisdictions and it will take time for the technology to evolve. I think we’re finally starting to see, previously the discussion around security tokens, particularly in the media was like what are they? And what’s the opportunity? And now you’re starting to see the conservations evolve- you’re hearing talk about standards, although some of them are entirely to US focus and focused on the ideal of the accreditation which it doesn’t actually apply to security tokens that our issued to our platform, everyone can invest in security tokens on our platform, not just accredited investors.

And so, I think you’re going to see clearly more and more people get into this space, you’re going to see more infrastructure built up. But in terms of these, lofty market projections I try to look at the technology and look at the real forefront.

Adam Chapnick:

I like the quote

Cliff Pace:

I very much say that we’ve put the building blocks into place. But it’s not enough obviously we need to take that quantile leap and start looking toward getting the quality business and yes that’s very important. We would be interested in running with quality partners, as we’ve done with Neufund with others. And looking at solid business proposals which they check all boxes, which certainly at an infancy stage, which we’re in at the moment.

The last thing we want is to attract players who are really going to block the level of confidence and reliability transparency etc. So, I’d rather take a little bit longer and come up with the right level of interaction and quality in respect of the market that’s going to come about rather than rush this and get it wrong.

Adam Chapnick:

Absolutely, there’s a quote that I like, I think it’s contributed to Bill Gates, but I like to say that cause on the internet you never know, but it’s that we always over estimate what we can accomplish in one year and under estimate what can be accomplished in 10 years and I think that probably applies here. Thank you both for sharing your expertise with us and enjoy the rest of the day. Give it up for Alex Molé and Cliff Pace.