Tokenisation could revolutionise the industry, suggests new ISLA paper
20 April 2023 UK
Image: Helmut/stock.adobe.com
The International Securities Lending Association (ISLA) has released a new paper which takes a ‘deep dive’ into tokenisation from the perspective of securities financing markets.
Entitled ‘Commercial Opportunities & Practical Considerations for Tokenisation for the Securities Financing Market’, the Digital Assets in Technology paper is part of ISLA’s Asset by Asset series.
The series is produced in conjunction with members of the Digital Asset Working Groups (DAWG), which was established by member request in May 2022, to discuss all topics associated with expansion into new digital asset classes.
In the new paper ISLA discusses the use case of using tokenisation as a way of ‘securitising’ certain fund structures. Further, it explores how tokenising assets can open up multiple opportunities for the industry, especially in respect of the collateralised leg of the trade.
ISLA highlights a number of key considerations including increased mobility of trapped assets and accessibility to investors for illiquid assets, the ability to optimise asset utility across fragmented asset pools, and reduced operational processing timeframes.
In addition, the paper recognises the reduction of delivery risk through a combination of tokens with smart contracts, improved supply chain transparency including ESG markers, and the transfer of contractual rights of a transaction separately to the assets themselves.
The use of tokenisation across financial services has been steadily growing, with the Value Exchange reporting over US$1.3 billion in live digital debt issuance as at March 2023. This value is expected to grow exponentially in the years to come, according to the paper.
ISLA stresses that “realising the full potential of tokenisation will require firms to look very closely at the legal structuring of any venture to ensure viability and that the solution will achieve the intended business outcome”.
Tokenisation provides a chance to revolutionise the securities financing industry alongside the wider capital market ecosystem, according to ISLA’s paper, providing it is implemented with the correct attention to due diligence, investor protection, control and risk management.
David Shone, director of digital affairs at ISLA, says: “The tokenisation paper highlights key areas of conversation around tokenisation using distributed ledger technology that have an impact on securities financing.
“Education, awareness and a forum to discuss risks and opportunities of new technology is core to what ISLA offers its members through our digital workstreams, and this paper will hopefully encourage further exploration within our Digital Asset Working Groups.”
Entitled ‘Commercial Opportunities & Practical Considerations for Tokenisation for the Securities Financing Market’, the Digital Assets in Technology paper is part of ISLA’s Asset by Asset series.
The series is produced in conjunction with members of the Digital Asset Working Groups (DAWG), which was established by member request in May 2022, to discuss all topics associated with expansion into new digital asset classes.
In the new paper ISLA discusses the use case of using tokenisation as a way of ‘securitising’ certain fund structures. Further, it explores how tokenising assets can open up multiple opportunities for the industry, especially in respect of the collateralised leg of the trade.
ISLA highlights a number of key considerations including increased mobility of trapped assets and accessibility to investors for illiquid assets, the ability to optimise asset utility across fragmented asset pools, and reduced operational processing timeframes.
In addition, the paper recognises the reduction of delivery risk through a combination of tokens with smart contracts, improved supply chain transparency including ESG markers, and the transfer of contractual rights of a transaction separately to the assets themselves.
The use of tokenisation across financial services has been steadily growing, with the Value Exchange reporting over US$1.3 billion in live digital debt issuance as at March 2023. This value is expected to grow exponentially in the years to come, according to the paper.
ISLA stresses that “realising the full potential of tokenisation will require firms to look very closely at the legal structuring of any venture to ensure viability and that the solution will achieve the intended business outcome”.
Tokenisation provides a chance to revolutionise the securities financing industry alongside the wider capital market ecosystem, according to ISLA’s paper, providing it is implemented with the correct attention to due diligence, investor protection, control and risk management.
David Shone, director of digital affairs at ISLA, says: “The tokenisation paper highlights key areas of conversation around tokenisation using distributed ledger technology that have an impact on securities financing.
“Education, awareness and a forum to discuss risks and opportunities of new technology is core to what ISLA offers its members through our digital workstreams, and this paper will hopefully encourage further exploration within our Digital Asset Working Groups.”
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