The future of tokens and exchanges - interview with Thomas Zeeb


  • SIX’s ambitious move into the digital asset space includes the possiblity of an own token and Initial Digital Offerings (IDO) with companies.

  • Thomas Zeeb’s confidence in SIX’s infrastructure play stems in part from the close relationship between Swiss banks (the stock exchanges’s owners) and SIX.

  • Switzerland’s regulatory framework is farther along than Germany’s - according to Zeeb - which means Deutsche Boerse and Sygnum (supposed rivals of SDX) may actually turn to SIX for support

  • There is still no appetitie to put the volatility of cryptocurrencies into an institutional market framework.

Switzerland's stock exchange may issue its own tokens as part of a plan to digitize assets. Top executive Thomas Zeeb says that tokens may eventually replace stocks and bonds, and talks about what role cryptocurrencies play.

How far in are you in building a digital exchange in Switzerland?

This year, we’ll deliver a pilot in late summer and first services will be live in early 2020. We will start with so called native digital applications – launching new tokens and an initial digital offering (IDO) service.

What type of tokens?

We’ve got a number of organizations which want to launch tokenized structured products, real estate funds, and so on. But it could also be our own IDO. Whether we begin with warrants, structured products, funds is up to our clients to decide. That is currently being finalized with our user-owners.

What hurdles need to be cleared by token issuers?

An IDO needs to fulfill similar standards as an IPO. You can’t just do an ICO whitepaper, hype it up a little bit, and then launch. As an infrastructure, we want to ensure we set the standard and that existing rules around asset safety and investor protection are maintained.

Where does the project go after that?

Ultimately we want to be able to tokenize existing securities – equities, fixed income, funds. Maybe the token will eventually replace the share one day. We would need to be able to freeze and segregate shares in one place in order to issue tokens. Then in turn to decommission tokens and release the share again, depending on where demand is required.

When will you be able to do that?

We’re expecting by 2021. A prerequisite is to have an appropriate regulatory environment in place. Whether we’ll have this by then will be critical. As we test the first phase early next year, along with the regulatory dialogue, we’re building a bridge to the second piece. That’s when the magic really begins to happen.

How active are the banks– your member-owners – in this process?

There are huge differences. Some banks are traditionally not first-movers and comfortable waiting to see how it goes, others want to be at the forefront, and influence the changes to come. Some companies have put up to 20 people into our shop to work with our people in order to develop in parallel in their own organizations as well.

SDX (SIX Digital Exchange) doesn’t plan to trade cryptocurrencies at all. Why?

The fatal flaw in trading cryptocurrency is not knowing who’s behind the trades and where the coins are coming from – by design. We have responsibilities in terms of ensuring that appropriate anti-money laundering and transaction monitoring processes, as is the case today in the traditional world, are in place. The way bitcoin is currently set up and traded, it wouldn’t meet the criteria for SDX.

Wealthy clients have shown a healthy interest in the crypto industry though.

There will always be investors for high-risk assets. There are markets available for certain kinds of products that go well outside what a stock exchange does.

Would SDX consider linking up with a crypto exchange later on?

There are various initiatives around the world working to create a legitimate liquidity pool for cryptocurrencies. We’ve talked about how to create interoperability between different chains and make sure you give access to liquidity pools, for example. If the market for today’s cryptocurrencies can be legitimized from a know-your-customer and know-your-coin point of view, we may well create the necessary connectivity between our respective infrastructures.

How much is SIX spending on building the SDX?

We’re investing a significant double-digit million amount this and last year. The final price tag depends on numerous factors, including the regulatory requirements, new client use cases, how long we have to sustain SDX half-ready to go in the box, and when profitability kicks in.

You will have to maintain two sets of trading infrastructures – and two sets of costs – for how long?

We’re looking at this project continuing on for at least ten years. It will take five to seven years to get to sufficient volumes on SDX to warrant a dialogue about decommissioning the traditional infrastructure. Banks and other trading counterparties have to adjust their legacy systems to the digital world, and each will do that in their own investment lifecycle.

Isn’t that where your clients have serious problems, because of legacy platforms?

The move to a digital infrastructure, at least as we envisage it, does not replicate old processes with new technology, but rather looks to change processes substantially, reducing risk, and increasing liquidity for our clients. That in turn creates a business case for our clients. Our approach allows our clients to adjust their legacy to digital in their own time.

SDX currently has about 70 people. Where will that be at the end of this year?

About 100 people, as we begin gearing up to run the operations from next year.

What does the recent joint venture between your rival Deutsche Boerse, Sygnum, and Swisscom mean for you?

Based in what we know at the moment, I don’t expect a significant impact. I see them as participants in the infrastructure we’re building. The likelihood that a Sygnum would be customer of SDX’s full market infrastructure is very high, I would hope, because that’s where they’re going to find their liquidity.

Deutsche Boerse is further down the crypto path than SIX. Surely they can ensure liquidity?

Are they? We don’t know what their strategic plan is, or whether they are looking at Switzerland as a way to gain more sandbox experience because our regulatory environment is more attractive and probably further ahead than others in the EU. Are they going to step up as a market-maker or take on some other role as part of our new ecosystem? This isn’t clear yet.

Wouldn’t it have made sense to cooperate with aspiring crypto banks like Sygnum?

I think we have to differentiate here between what an infrastructure provider like SIX, and SDX does, and what market participants do in using that infrastructure. So not necessarily, because 15 months ago they had not disclosed what they were focusing on. As far as we can tell, Sygnum is competing primarily with other commercial banks, not with us. Our role is to provide the infrastructure they can all work on fairly and everybody has access to, if they meet the membership criteria. we are not just creating a new asset class, or service, but rather a new market.

What should banks be doing in terms of preparing for SDX?

We’ve got responsibilities around our role as an infrastructure, but we’re putting it out there and saying «play and work with it as soon as this summer, start thinking about what it means for your organization and thinking through some transactions». The creative juices will begin to flow, our members and other market participants like fintechs who connect to these chains will come up with some fantastic products. That’s where the opportunities are and ultimately, also where the fun is.

Thomas Zeeb is head of securities and exchanges and SIX. He joined the Swiss stock exchange operator nearly 11 years ago from Clearstream, a post-trading services provider where he was responsible for sales, relationships, client services, and marketing in Europe. The Toronto native began his financial career at Deutsche Bank in Frankfurt and also spent nine years at BNY Mellon in London. He was promoted to SIX's top management last year.

This article originally appeared on Finews.