R3: Digital Asset Exchanges Will Expand Range of Traded Assets

Enterprise blockchain provider R3 says the development of digital asset exchanges by exchange groups like Nasdaq and SIX could help introduce new types of asset classes to the market, and extend trading hours.

The vendor last month announced a long-term partnership with Nasdaq. As part of the agreement, Nasdaq’s market technology business will leverage R3’s enterprise blockchain platform Corda to build full lifecycle solutions for digital asset marketplaces.

Angie Walker, global head of capital markets business development at R3, says Nasdaq is seeing a significant increase in interest from regional exchanges to extend the asset coverage within their existing marketplaces.

“Many of them are also looking at establishing digital asset exchanges alongside their existing traditional marketplace in order to list and trade a very diverse range of other asset types. This not only gives them the capability to broaden the asset coverage that they can offer to their existing customers, it also gives them the ability to broaden their membership,” she says.

Membership of exchanges is traditionally dictated by the assets they list and trade. Walker says a large number of assets, such as real estate, sit outside capital markets. The development of digital exchanges could help bourses to broaden their asset coverage, and potentially have a large impact on their trading window too.

For example, SIX Digital Exchange (SDX) is also being built on R3’s Corda platform. Walker says this will enable the Swiss exchange to list not only equities and equity derivatives from within their jurisdiction, but also to expand to include a more diverse range of assets.

Besides real estate, other examples of the type of diverse assets that could be introduced due to the development of digital asset exchanges include infrastructure, bullion and ESG asset types. 

Charley Cooper, managing director at R3, says tokenizing assets allows for the creation of a trading mechanism for assets that may not have been traded in the past.

In tokenizing real estate, for example, a piece of property or a building could be broken down into component parts and represented by a certain number of tokens, allowing for standardized trading of the asset.

Trading hours could also be impacted by the shift towards digital exchanges, Walker says. Stock exchanges and regional exchanges tend to trade between 8:30 am and 4:30 pm. “If you think about a digital asset exchange, by its very nature, it doesn’t discriminate in terms of the asset types that it trades. They typically could be assets that are global in nature,” Walker says. “Therefore the membership and the active participants on that market could also be global in nature, which also leads on to the fact that the trading window for these exchanges could truly be 24/7.”

Walker says Nasdaq started building on Corda toward the end of last year. Nasdaq is planning to demonstrate aspects of the digital suite before the end of Q2.

Walker says R3 has been working to improve its platform’s scalability. Some exchanges are quite small and niche, like metals and commodities exchanges, while others list a diverse range of assets and have huge communities of participants. 

“In those scenarios, we have got to have a technology and an infrastructure that can scale to accommodate both ends of that spectrum,” Walker says.

She says R3 has developed technology to run multiple virtual nodes-within-a-node that could allow for better scalability for Nasdaq and other clients. “We have introduced technologies such as the account structure,” she says. “This allows us to virtualize Corda nodes within the node: it allows us to run multiple Corda nodes, but within a single piece of hardware.”

Johan Toll, head of digital assets at Nasdaq, says his firm’s goal from a market technology perspective is to ensure it has offerings and partnerships that meet the needs of clients and their businesses, within and beyond the financial markets.

“Nasdaq Market Technology will leverage R3’s Corda in building full lifecycle solutions for digital assets marketplaces, offered as a Nasdaq service, fully operated in the cloud,” he says. “Our combined expertise and technology make us well-positioned to deliver agile and resilient services to support the whole digital assets lifecycle where issuance, trading, settlement and custody of those assets can be easily managed.” 

R3’s Cooper says his company is evaluating the possibility of offering managed services to clients. He says he suspects that as firms emerge from the coronavirus crisis, they may have to cut spending on their IT teams and in-house application developers.

“We anticipate as an organization that increasingly in a post-crisis world, institutions that have been through a very difficult economic rough patch, that may have had resource cuts, that may have had staff cuts, that may have had different constraints put on they didn’t anticipate, will need a more holistic managed service approach from companies like ours,” he says.

SIX was unable to provide comment for this story.