The worlds first digital securities are at hand.
In an exclusive interview with Traders, Overstock.com chief executive officer Patrick Byrne told Traders that the Securities and Exchange Commission has declared Overstocks registration statement covering the issuance of digital securities effective. He explained that Overstock has had a registration statement on Form S-3 on file with the SEC for the last eight months.
The S-3 registers Overstocks potential offering of various types of securities in digital form. The ownership and transfer of any digital securities actually issued will be recorded on a publicly distributed ledger. Were not looking to go around the regulators but rather work with them and get it right and be transparent about the process, Byrne began. We want to show that the blockchain technology works and is ready.
Byrne explained that Overstock has not yet decided exactly what type of security it might issue, saying Overstock probably would not be interested in issuing equity securities at current market pricing.
It will be an Overstock security that exists nowhere other than on the blockchain, Byrne said. Subject to appropriate back-up, it will be another demonstration that the technology works and is ready.
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This is part of Overstocks so-called crawl, walk, run philosophy, Byrne said. First, the company issued a small private $500,000 digital bond to Byrne himself for the crawl phase. Second, for the walk phase, Overstock issued a private $5 million digital bond to an unrelated investor to show the technology worked on a slightly larger scale.
Now, Byrne said, its time for the run-phase – the issuance of a public digital security – but pointing out that any offer of any security under the registration statement would be made only by means of the prospectus and a prospectus supplement.
t0
Overstocks proprietary blockchain-esque system or platform is dubbed t0. The firm began its blockchain technology effort one year ago with the goal of using the blockchain and changing Wall Street processes, Byrne told Traders. t0 is FIX compliant and will be accessible as described in the registration statement.
It is a home grown technology. Similar to the blockchain but unique to Overstock, Byrne said.
The blockchain, he added, now refers to a broad area of ledger technology and not just a single system developed by one company. He said that many companies are developing their own ledgers and the blockchain is now an industry rather than a single system.
We built our system to be ledger-agnostic and it can ride on top of bitcoin or other ledger systems, Byrne said.
And it works. The firms $5 million private digital bond was recorded on Overstocks proprietary blockchain-esq t0ledger system. As Byrne explained it, the security was issued and settled simultaneously, as the technology allows for streamlined clearing directly between the buyer and seller.
Historically, the clearing process has required or used a broker or other intermediary to act as a delivery agent between the buyer and seller in a financial transaction or trade. The broker takes custody of the security from the seller and transfers it to the buyer and the process can take several days. Typical settlement and clearing takes 3 days from the actual trade date, or T+3 in market parlance, but sometimes takes longer. Using the blockchain technology eliminates this delay.
Its a T+0 settlement now, Byrne said. It was really a demonstration of the process of how the trade is the settlement.
