Digital Asset Holdings, the blockchain startup run by former JPMorgan Chase & Co. banker Blythe Masters, raised $52 million from investors and won a contract to radically speed up settlement in Australia’s stock market.
The deal with ASX Ltd., Australia’s main exchange operator, is the boldest attempt yet to prove the worth of a so-called distributed ledger system. ASX agreed to invest A$14.9 million ($10.5 million) into Digital Asset, joining other investors including JPMorgan, CME Group Inc. and ICAP Plc. The funding round was more than two times oversubscribed and values New York-based Digital Asset at $100 million, according to people familiar with the matter.
Digital Asset is among about a dozen startups that are racing to prove that blockchain, the technology underlying bitcoin, can be applied to financial markets. While in today’s securities markets a central authority oversees the transfer of cash for shares, DAH aims to link all participants in that process on the same database to allow real-time movement of assets. While the aim in Australia is to reduce settlement times to minutes, regulators in the U.S. are currently working to cut it to two days from three.
The other investors in Digital Asset are Accenture Plc, Deutsche Boerse AG, Depository Trust & Clearing Corp., Citigroup Inc., BNP Paribas SA, Broadridge Financial Solutions Inc., PNC Financial Services Group Inc., Banco Santander SA and ABN AMRO Group NV....
“We can now trade equities in 150 microseconds, then it takes two days to settle. That makes no sense,” Elmer Funke Kupper, chief executive officer of ASX, said in an interview. “A retail investor in Australia should be able to sell their shares, go to the nearest ATM and get their cash out.” ASX said a year ago that it would replace all of its core technology systems. Digital Asset beat out 400 applicants for the contract to remake its clearing and settlement system. The Australian company invested about $10 million in Digital Asset, Funke Kupper said.
“The moment we started to think about it, we realized that this is about much
more than replacing our back-office systems,” he said. “This is the first opportunity in 20 years to re-engineer the way the market operates end-to-end. We should not miss that opportunity.”
After more than a year of enthusiastic talk about how the blockchain or distributed ledgers can transform finance, 2016 looks to be the year when those ideas are put to the test. Earlier this week, R3, a blockchain startup backed by 42 banks, said it successfully simulated trades of digital assets on a private network made up of 11 of its members. Overstock.com Inc. is close to unveiling the first securities-trading system using blockchain, while Nasdaq Inc. recently said it used the technology to complete and record a private securities transaction for the first time....MORE