Equities and bonds have identification numbers so why not tokenized asset offerings (TAOs).
That’s the premise of a new agreement between blockchain startup Templum Markets and CUSIP Global Services (CGS) whose goal is to promote liquidity and post-trade operational efficiency for TAOs. North America’s national numbering agency will now issue CUSIPs or nine-digit alphanumeric codes to the TAOs traded on Templum’s alternative trading system.
Templum Markets entered the TAO arena when it bought Liquid Market Group’s alternative trading platform Liquid M Capital in February for an undisclosed pricetag. The deal with CGS makes Templum Markets the first broker-dealer registered with the US Securities and Exchange Commission to offer CUSIP identifiers to TAOs. Templum Markets’ parent Templum is also the first to be issued CUSIPs for its TAO.
Popular with real estate firms, TAOs represent the latest incarnation of initial coin offerings (ICOs) which allowed firms to raise capital through a global investor base yet often violated US securities laws. Instead, TAOs are variations on private placement securities following the same SEC rules as those secutities. TAOs are represented as tokens whose ownership is reflected on a public blockchain ledger using smart contracts. The smart contracts specify the terms and conditions, such as the price, time of offering and type of security being sold similar to the offering document for a private placement.
Templum’s alternative trading system allows buyers and sellers to place indications of interest for TAOs which can then be matched. “Having an identification number ensures that buyers and sellers can verify exactly which TAO they are buying and selling and the execution price.” says Vince Molinari, chief executive officer of Templum. “Because the TAOs now have CUSIPs, bid and offer prices can also be found through data vendors such as Bloomberg and Reuters.” Middle and back offices also benefit from the ID codes. They can accurately record the transactions, thereby eliminating the potential for settlement errors or incorrect payments.
For issuers, getting a CUSIP for a tokenized asset is just as simple as one for stocks and bonds. It also costs the same US$178 per CUSIP. All the issuer has to do is fill out the proper documentation with CGS and it will be assigned one within as quickly as an hour or a day at most after a CGS analyst extracts up to 60 discrete data elements to determine the uniqueness of the TAO. So far, CGS has issued over 40 million CUSIPs to a wide range of US stocks and bonds, including alternative assets such as syndicated loans.
“Just like CUSIP IDs for stocks and bonds, the first six characters for a TAO identify an individual issuer, the next two, the type of issue and the order in which it was issued,” explains Matt Bastian, director of market and business development at CGS in New York. “The final digit is a check digit.”