Tom Minney reports
An African national exchange scored a world first in listing digital securities last year, and had a public offer open to invest in tokenised shares in itself. MERJ Exchange, the national securities exchange of Seychelles, was the first regulated exchange to list digital tokens representing shares in the company that owns the exchange, in August 2019.
It started offering the tokens to the public and investment institutions on 10 September in a $4m initial public offer (IPO) and had extended this to close on 28 February.
The exchange, until last year known as Trop-X, already operated as an exchange for equities, debt and derivatives. It claims to be the first fully regulated exchange which can handle both traditional securities and digital assets while operating its own regulated infrastructure for dealing with securities and payments and using a central clearing model.
It may be the first global market to offer the full cycle in primary and secondary markets in digital assets.
When the token offer prospectus was issued last August, the bourse had 31 listed equities and two debt issues, with a market capitalisation of $383m. There were three broking members and five advisors who could sponsor listings of new securities on the exchange.
According to the investment deck, MERJ Exchange aims to position itself as a key regulated system as blockchain technology transforms the way the world delivers value.
Seychelles regulations allow MERJ to integrate overseas organisations that are licensed and regulated in a recognised jurisdiction, without a requirement that members have a presence in Seychelles.
This means that brokers and those issuing and investing in the securities on its platform can be anywhere in the world. It aims to provide seamless direct access for individual users on mobile and web apps.
Key potential includes tokenising some illiquid assets such as real estate, shares in small and medium enterprises (SMEs), copyrights and collectables such as art.
The bourse revealed big plans to increase the number of issuers from the current 33 to 111 by the end of year two, boost the total market capitalisation (up to $1bn according to a January 2020 newsletter – and the number of listings was 39 at the time of going to press) and increase the number of sponsors and brokers, as well as liquidity. It will cut trading fees from the current 0.5% to 0.15% while the capital raise fee is 0.3%.
Ed Tuohy, CEO of MERJ Exchange, says: “MERJ has spent years establishing the infrastructure, the regulatory licences and the technology. We can now move decisively.”
It hopes to take on global incumbent exchanges which have legacy structures and stakeholders that are not yet ready to tackle the change.
Shares in the MERJ Exchange are tokenised into digital assets and the current offer is for tokens representing 1,652,893 securities at $2.42 per share, to be traded in US dollars – or 16% of the total shares if issued in full.
The minimum raise for the IPO to go ahead will be $500,000. The exchange is valuing itself at $25m and says it will spend the offer proceeds on IT advisors and consultants, more staff and marketing.
International partners for the offer include Jumpstart Securities in the US and Globacap in UK and the sponsor advisor for the offer is PKF Capital Markets (Seychelles) Ltd.
The exchange was incorporated in 2011 as Trop-X (Seychelles) Ltd. It received the licence to operate the Seychelles Securities Exchange in June 2012 and went live in August 2013 with the first equity listing.
It launched debt and derivatives exchanges in 2014. It listed its first Eurobond in 2016 and started working on the digital asset project with the Ethereum Alliance.
It changed its name to MERJ Exchange in December 2018 and did its first tokenised listing, of its own shares, on 7 August 2019. It says its operational partners include Euroclear and Strate.
The structure is MERJ Exchange Ltd and its two wholly owned subsidiaries, MERJ Clearing and Settlement Ltd and MERJ Depository and Registry Ltd.