London Stock Exchange Leads $20 Million Bet On Blockchain To Cut Out Custody Middlemen

&l;figure class=&q;image-embed embed-0&q;&g;&l;div&g;&l;img src=&q;https://specials-images.forbesimg.com/imageserve/828113138/960x0.jpg?fit=scale&q; alt=&q;&q; data-height=&q;2224&q; data-width=&q;3344&q;&g;&l;/div&g;&l;figcaption&g;&l;fbs-accordion&g;&l;p class=&q;color-body light-text&q;&g;BRITAIN-MARKETS-WORLD&l;small&g;AFP/Getty Images&l;/small&g;&l;/p&g;&l;/fbs-accordion&g;&l;/figcaption&g;&l;/figure&g;&l;p&g;If Nivaura gets its way, the world's capital markets will run like vending machines. Instead of a complex web of depositors holding stock certificates and investment banks holding cold, hard cash, while counterparties frantically move around virtual representations of their assets, investors will deal directly with each other and hold their own assets, using the blockchain technology made famous by bitcoin.&l;/p&g;&l;p&g;After three years of making occasional, but notable appearances in the press, Nivaura has harnessed the attention of some of the largest financial players in the world, and turned it into $20 million in seed funding to make its founders' vision a reality. Closed on Tuesday, and announced today, the unusually large seed funding round is being led by the London Stock Exchange, the sixth largest exchange in the world by volume, and stands to change the way investors and companies connect.&l;/p&g;&l;p&g;If Nivaura achieves its goals though, it's not just the companies that survive the simplified transaction flow that stand to benefit. By changing the role these traditional middlemen play, Nivaura CEO Avtar Sehra estimates that the time to market for issuing bonds, loans and equity will be cut by at least 60%, time that he expects will result in savings for investors as well.&l;/p&g;&l;fbs-ad position=&q;inread&q; progressive&g;&l;/fbs-ad&g;&l;p&g;"In the traditional world, you have this complex and paid chain of custody that can be eliminated using a blockchain," says Sehra, who previously worked as an astro-physicist, and applies his experience conducting scientific experiments to simplifying capital markets. "But also the cost of custody potentially goes down for the investors as well."&l;/p&g;&l;p&g;In addition to the London Stock Exchange, the $20 million seed round is being joined by the venture capital arm of Santander bank, law firm Allen &a;amp; Overy, blockchain venture capital firm Digital Currency Group, and several others. &l;/p&g;&l;div class=&q;vestpocket&q; vest-pocket&g;&l;/div&g;&l;p&g;Nivuara currently employs about 30 people, dispersed across locations in England and Italy, where the company's chief technical officer and chief investment officer live, and plans to expand its team to the United States and Asia using the venture capital funding. In addition to the new hires who will help scale the platform called Nivaura Connect into different regulatory jurisdictions, the company plans to invest the funds into research and development efforts aimed at using artificial intelligence to tailor services for customers based on past usage patterns.&l;/p&g;&l;p&g;As part of the investment, two new board members will also join Nivaura's existing board of directors. Those new members are the former head of global markets for HSBC, Spencer Lake, who is also joining as an investor and commercial advisor on business development, and Nikhil Rathi, the CEO of London Stock Exchange plc and director of international development for the London Stock Exchange Group.&l;/p&g;&l;p&g;Current board members are Sehra and co-founder, Marcello Fiori, who is the head of the company's blockchain development, the former head of financial services for McKinsey, Europe-Middle East, Alan Morgan, who serves as chairman, Peter Walker, from Capita Asset Services and Simon Hill, a senior partner at Allen &a;amp; Overy. &l;/p&g;&l;p&g;"We look forward to working with Nivaura to drive further innovation along the capital markets value chain,&q; said Rathi in a statement, &q;to benefit both companies, their advisors and investors.&q; As part of the investment, LSEG is partnering with Nivaura to explore new business opportunities.&l;/p&g;&l;p&g;Nivaura makes money by charging for its white label services, designed to let existing intermediaries like investing banks and exchanges issue their own financial instruments. While many early-stage blockchain startups have yet to start generating revenue, Nivaura chief financial officer Gavin Youll says the company already has ten active commercial deals and has been generating revenue at a rate of more than $1 million annually since April 2018. &l;/p&g;&l;p&g;It was at that time that U.K financial regulator, the Financial Conduct Authority (FCA) granted Nivaura full regulatory permission to do business. The company isn't yet revealing who those customers are, but Youll says they include broker dealers, banks, exchanges, and even law firms all vying for a piece of a new cryptoasset issuance paradigm.&l;/p&g;&l;p&g;"At the moment, if I settle and hold securities to a traditional chain of custody, I&s;m going to pay a basis-point fee," says Sehra. "That means if I&s;m holding $10 billion I might be paying like .5 basis points. However, in the blockchain world," where customers can create and custody their own assets, "I think it&s;s going go down to a volume-based fee rather than value-based."&l;/p&g;&l;p&g;Competitors in the push to issue assets on a blockchain include Mercedes parent company&a;nbsp;&l;a href=&q;https://www.coindesk.com/daimlers-e100-million-ethereum-bond-bigger-mercedes-benz/&q; target=&q;_blank&q; class=&q;color-accent&q;&g;Daimler&l;/a&g;, corporate analyst&a;nbsp;&l;a href=&q;https://www.coindesk.com/corporate-analyst-fisco-tests-issuance-bitcoin-bond-japan/&q; target=&q;_blank&q; class=&q;color-accent&q;&g;Fisco&l;/a&g;&a;nbsp;and even online retailer&a;nbsp;&l;a href=&q;https://www.coindesk.com/regulated-icos-arrive-overstock-open-exchange-legal-token-trading/&q; target=&q;_blank&q; class=&q;color-accent&q;&g;Overstock&l;/a&g;, which have each issued crypto bonds. Even central securities depositories themselves are exploring the space. Since June 2017&a;nbsp;a group &l;a href=&q;https://www.coindesk.com/worlds-largest-csds-forming-new-blockchain-consortium&q; target=&q;_blank&q; class=&q;color-accent&q;&g;including &l;/a&g;the DTCC, Canada's CDS, the Moscow Exchange Group and South Africa's Strate, have been working to explore how using a shared ledger of transactions could help &l;em&g;and &l;/em&g;harm their current business model.&l;/p&g;&l;p&g;In a series of &l;a href=&q;https://www.coindesk.com/security-settles-ethereum-first-kind-blockchain-transaction&q; target=&q;_blank&q; class=&q;color-accent&q;&g;experiments &l;/a&g;designed to teach Nivaura how its issuances compared to traditional capital markets work flows—and to each other—the company previously issued securities using the bitcoin and ethereum blockchain, and even &l;a href=&q;https://www.coindesk.com/security-settles-ethereum-first-kind-blockchain-transaction&q; target=&q;_blank&q; class=&q;color-accent&q;&g;denominated &l;/a&g;one bond in ethereum&s;s native cryptocurrency, ether. While Nivaura describes itself as platform agnostic, most of its blockchain services rely on the ethereum blockchain, and only about a third use blockchain at all, with the majority of customers still opting to use traditional technology interfaced with the Nivaura platform.&l;/p&g;&l;p&g;"We&s;re happy to deploy connections to the old-world, if you like, traditional clearing and settling infrastructure," says Youll. "But we are very happy to provide connections to blockchain as well."&l;/p&g;&q;,&q;bodyAsDeltas&q;:&q;