InvestaX completes ‘proof of concept’ for tokenising a Singapore VCC

InvestaX, the Singapore-based digital securities investment and trading platform, announced the completion of ‘Project e-VCC’, which involved examining the technological, legal and practical feasibility of tokenising a Singapore Variable Capital Company (VCC) using distributed ledger technologies (DLT).

InvestaX was awarded a proof-of-concept (PoC) grant in September 2020 under the Financial Sector Technology & Innovation (FSTI) scheme administered by the Monetary Authority of Singapore (MAS).
This provides funding support for experimentation, development and dissemination of nascent innovative technologies in the financial services sector.

The PoC grant was designed to enable industry participants to determine the lifecycle and workflow processes for efficiencies gained using an e-VCC by the relevant stakeholders – fund manager, fund administrator and investors – and the key considerations for potential tradability of such e-VCC securities on exchanges.

The project also explored VCC fund shares issued directly on either a permissionless /public blockchain or a permissioned/private blockchain. It further compared the benefits of a blockchain-native security token design (‘one-tier’) as opposed to a tokenised security (‘two-tier’) design.

The project determined that in a ‘one-tier’ approach, record keeping of fund interests, traditionally done by a transfer agent, can now be executed via DLT. It concluded that there was nothing explicit in Singapore’s existing laws prohibiting the issuance of blockchain-native securities. Such securities would come under the purview of digital tokens that constitute capital market products and be regulated under the Securities & Futures Act. To enable the secondary trading of e-VCC shares, however, the potential application of stamp duty would need to be addressed.

“These funds in the real estate, private equity and venture capital world, typically suffer from a lack of liquidity, high barriers to entry, and are burdened with paper-based processes that add to the costs of this competitive industry. By tokenising the VCC, we hope to support Singapore’s ambition of becoming the world’s fund management centre, as well as the hub for capital markets innovations,” said InvestaX CEO Julian Kwan.

InvestaX is licensed by MAS for offering end-to-end solutions for the issuance, trading and custody of digital securities for real estate, private equity and other alternative investments. It is an early pioneer in the use of blockchain technologies and works with both issuers and investors to use DLT to develop technology-driven investment vehicles and products to reduce costs, increase efficiencies and transparency, and to facilitate secondary market trading in private capital markets.

“The Singapore VCC has continued to gather momentum since its launch, and ‘Project e-VCC’ further shows Singapore’s commitment to embracing technology to deliver efficient, market leading global financial solutions,” said Andrew Galway, Managing Director of Sovereign Management Services.

As part of the project, InvestaX collaborated with investment managers UBS and State Street, as well as law firm CMS Holborn Asia and accountants PwC Singapore. The Tezos Foundation and Hashstacs Pte Ltd (STACS) provided support as public and private blockchain protocol providers, respectively, for the PoC.