Boerse Stuttgart Group is aiming to launch an app for trading cryptocurrencies in the autumn, and add a platform for initial coin offerings, as the exchange looks to create an end-to-end infrastructure for digital assets.

At the beginning of this month Boerse Stuttgart Group said it would pursue its digitisation strategy through allowing cryptocurrency trading via its app BISON. In addition it is launching a platform for ICOs, a multilateral trading venue for cryptocurrencies and a custody product for digital assets. BISON is being developed by Sowa Labs, a Boerse Stuttgart subsidiary.

Ulli Spankowski, Sowa Labs

Ulli Spankowski, chief executive of  Sowa Labs, told Markets Media: “Boerse Stuttgart completed the digital asset strategy last year and we began working on BISON in January 2018. The app is due to go live in the autumn with an ICO platform added as soon as possible.”

Boerse Stuttgart is a floor-based exchange where retail investors can trade equities, securitised derivatives, bonds, exchange-traded funds and investment funds. Last year Boerse Stuttgart had a total trading volume of €81bn ($93bn) across all asset classes, which it said made it Europe’s tenth largest exchange.

“BISON is aimed at retail investors but also has a complete API structure so that it can be used by institutions,” added Spankowski. “Institutions will not be excluded and it will be a mixture of both worlds.”

The German exchange group acquired Sowa Labs in November last year for a seven-digit figure. Sowa Labs was launched in 2013 to specialise in predictive data analytics using proprietary artificial intelligence. Spankowski said: “In Europe we probably have the largest social media dataset for cryptocurrencies which goes back five years.”

Sowa Labs is part of Boerse Stuttgart Digital Ventures, a company launched in September last year to work on innovative products in equities, cryptocurrencies and blockchain. Boerse Stuttgart Digital Ventures can also invest in startups and enter into partnerships with selected partners to implement its digitisation strategy.

“The connection between data analytics, cryptocurrencies and an established stock exchange was a good fit,” added Spankowski. “We shared the same vision as Alexander Höptner, chief executive at Boerse Stuttgart, on the future of financial markets and exchanges.”

Acceptance of digital assets

Alexander Höptner, Boerse Stuttgart

Höptner has said Boerse Stuttgart can promote acceptance of digital assets through its experience of technology, regulation and trading models. Therefore the exchange can offer central services along the whole value chain for digital assets, all under one roof.

The ICO platform will allow the issuance of digital tokens for corporate financing or to represent rights and assets. “ICOs will have to meet certain requirements, as IPOs, regarding standardisation and transparency,” said Spankowski.

Boerse Stuttgart Group is also establishing a multilateral and regulated trading venue for cryptocurrencies. Spankowski described the relationship with German regulators to obtain approval as very positive. He added: “Cryptocurrencies will not be traded on a fully regulated market like other asset classes, but trading will comply with relevant regulations”

Consultancy Greenwich Associates said in a recent report on ICOs that there is significant retail demand for high-risk, early-stage technology ventures. The study said that more than $12bn in capital has been raised through ICOs, with $5.5bn in 2017 and more than $6bn so far this year.

“While this is still much smaller than the traditional IPO market, it does represent a viable alternative to venture capital for many startups,” added the study.

Richard Johnson, vice president in consultancy Greenwich Associates’ market structure and technology practice, focusing on equities and financial technology, and author of the report noted that one year ago, a startup looking to raise capital for a blockchain-based business would probably have chosen to launch an ICO.

“Today, only the most reckless organization would choose to raise funds from U.S. retail investors this way,” said Johnson. “Innovation coming from development teams and retail-investor interest will, henceforth, be channeled through regulated token offerings.”

Richard Johnson, Greenwich Associates

Richard Johnson, Greenwich Associates

Johnson concluded that traditional financial services companies have mostly steered clear of the crypto space out of concern about the regulatory status of crypto enterprises. “Now, with a regulatory construct and enhanced legitimacy emerging around security tokens, we will see greater institutional participation and increased innovation,” he said.

Höptner said in a statement that tokens issued via Boerse Stuttgart’s ICO platform can be traded on the exchange’s own secondary market. He continued: “This is an important success factor for ICOs. At the same time we are responding to demand from both retail and institutional investors for a regulated and reliable environment for trading with cryptocurrencies.”

In addition to looking for a regulated and reliable environment for trading with cryptocurrencies, investors are also looking for safe custody of digital assets. Boerse Stuttgart Group will offer custody services for the start of BISON and then extend the offering along the entire value chain for digital assets.

Spankowski said: “We will provide an internal custody solution through working with trusted partners.”

Boerse Stuttgart is launching BISON after Bitcoin fell below $6,000 in June, after reaching a record of nearly $19,500 at the end of last year. Other cryptocurrencies have been equally volatile.

“We are launching while cryptocurrencies are not in a bull market,” added Spankowski. “This backs up our belief that cryptocurrencies and digital assets will become a significant part of the financial system.”

Rivals 

Other exchanges are also launching infrastructure for digital assets. Last month Switzerland’s stock exchange – owned and managed by SIX – said it is building a fully integrated trading, settlement and custody infrastructure for digital assets.

Thomas Zeeb, SIX

Thomas Zeeb, Head Securities & Exchanges at SIX, told Markets Media: “In the move to digital a number of exchanges are using new technology largely to automate existing processes. While that may be appealing in terms of replacing legacy systems, I believe that they are missing a trick — the real value of new technology is not to replace old processes, but to fundamentally rethink how the business is done.”

In the US, Intercontinental Exchange said this month that it plans to form Bakkt, a new company which will use Microsoft cloud solutions to create an open and regulated global ecosystem for digital assets. The Bakkt ecosystem is expected to include federally regulated markets and warehousing along with merchant and consumer applications in the digital asset marketplace, which it estimates at $270bn.

Jeffrey Sprecher, founder, chairman and chief executive of ICE, said in a statement: “In bringing regulated, connected infrastructure together with institutional and consumer applications for digital assets, we aim to build confidence in the asset class on a global scale, consistent with our track record of bringing transparency and trust to previously unregulated markets.”

ICE’s US-based futures exchange and clearing house also aim to launch a 1-day physically delivered Bitcoin contract along with physical warehousing in November this year, subject to regulatory review and approval. In addition, the clearing house plans to create a separate guarantee fund that will be funded by Bakkt.

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