MERJ Preps Hybrid Securities-Blockchain Trading Tech Infrastructure

MERJ Exchange, a stock, debt and derivatives market based in the Seychelles Islands, is in the final stages of a technology cutover to a blockchain environment that will enable it to launch a securitized digital asset—the “world’s first” regulated token to be listed on a national stock exchange—within weeks, officials say.

MERJ CEO Edmond Tuohy says the exchange is going through its final regulatory approval process ahead of the launch, as it runs its old technology parallel to a distributed ledger.

“We have our token set up on a UAT [user acceptance testing] environment on the Ethereum blockchain, and we are getting our final security reviews from an independent auditor,” Tuohy says. “We are going to take that and present that to the regulator in the next couple of weeks. [To make sure] they are happy with all of the framework that we have done, we just have to present to them and take them through the final reviews on our process. So I expect that, in the next two to three weeks, we will actually have a listed security recorded in the Ethereum distributed ledger. So it is imminent.”

MERJ Exchange launched in 2011, originally as the Trop-X Seychelles Securities Exchange. Its technology and underlying infrastructure is provided by Velocity Trade, a broker-dealer that owns an equity stake in the exchange, and which has been building the compatibility between the exchange’s existing technology and Ethereum.

“We have outsourced the work to Velocity Trade to develop our front-end infrastructure to deal with the distributed ledger side of it, and we have engaged with other partners to help us build that out,” Tuohy says.

The exchange will continue to trade traditional securities “under the same umbrella” alongside securitized tokens, and will maintain its existing infrastructure to support that, but over time plans to move more components of its architecture “on-chain,” a spokesperson says—though not until its regulators are completely satisfied with any proposed changes.

“The first phase is proving it, getting it running in parallel and making it work,” he says. “And then the next phase—one of the reasons I am here in London [attending the Bloomberg Emerging and Frontier Forum]—is that there are some providers [here] involved in distributed ledger technology that are very advanced, that are working with the likes of IBM, that are using the same security protocols that are used for protecting the nuclear codes. So we will want to migrate onto their infrastructure technology.”

Jumping the Line

The issuing of the security and the issuer will be subject to all of the standard regulation of a securities exchange. Tuohy stresses that MERJ is not a cryptocurrency exchange, but describes it as a “securities exchange… using distributed ledger technology” to record share ownership.

Indeed, one reason why MERJ has managed to beat other exchanges worldwide to a listed token is because all the required components are housed under one roof. While in larger more traditional markets like London, operating a marketplace may involve different licensed entities—the exchange, the clearinghouse, and share registry—MERJ owns all three and is “vertically integrated,” Tuohy says.

“For us to adopt the end-to-end prices, and to implement technology across the three entities, was achievable… because we were able to work with the regulator and we had the approval of the board,” he says.