With very little fanfare, a much anticipated announcement from Canadian securities regulators has launched a first-of-its-kind platform for Canadian investors to purchase and trade digital securities directly using distributed ledger technology or blockchain.
Finhaven Private Markets, operated by Vancouver-based Finhaven Capital Inc. (a registered Exempt Market Dealer), has received approval from regulators across the country to connect investors directly with private companies raising capital, to have the shares issued directly using the security of blockchain, and allowing those investors to engage in direct, privately negotiated transactions with other investors on the platform. The implications for traditional investment channels like IPOs and RTOs, brokered financings and non-brokered private placements could be huge.
The holy grail of blockchain has been the elimination of the transactional middleman, yet the securities industry – arguably the most heavily layered sector in the economy – has been woefully late to the possibilities. The elimination of 3rd party clearing houses and the need for paper documentation alone could be transformative. As Finhaven CEO DH Kim explained, “it is a significant milestone for our organization and the regulators to be able to bring a simple, safe and secure solution to all market participants in Canada”.
Not surprisingly, the platform will initially be restricted to individual investors who qualify as “accredited” by meeting long-standing criteria for income and/or assets. Finhaven Private Markets is also being held to a much higher standard of reporting and tracking than other Exempt Market Dealers employing the status quo financing model. However, it is clear that the ability to hold private securities in a digital “wallet”, and to trade those securities privately and directly to other qualifying investors, will be of significant interest to sophisticated Canadian investors.
Ultimately, the key to the success of this innovative approach will be the same as every other – the quality of the investments. Finhaven Private Markets will now need to bring compelling, unique and successful companies onto the platform. The attraction of being able to market to a fully pre-qualified and motivated group of accredited investors should be attractive to issuers. The challenge will be the chicken and egg nature of launching a brand new investing platform. To attract more investors you need good offerings, to attract new offerings you need a solid base of investors. This long overdue leap forward in securities technology should have a good chance to do both.