Efficiency of private placement capital markets

The proliferation of security token financing (STO) makes it easier for companies to raise money in private placement capital markets.This is mainly achieved through “platforming of mechanisms“, “open/globalization“, and “secondary distribution“.

Making a platform for the mechanism

In the past, private placement capital markets have generally interacted with securities companies and law firms to create securities, apply to the authorities, and negotiate investments with investors.This process is time consuming and costly, and only organizations of a certain size can procure it.

 However, when security tokens are realized, these processes are centralized through the platform, making it easier for small businesses and companies rushing to raise money.The platform provides a platform feature that handles token transfers, contracts between issuers and investors, issues and purchases of security tokens, and responds to exemption stipulations that vary by region.

 By taking advantage of this mechanism, issuers can easily raise funds in the private placement market.This is progressing in the United States and the EU/EEA region, where blockchain-related projects are active.

A globally unified approach

The securities recorded in the blockchain are called security tokens.It is based on an open mechanism that can be referenced from anywhere in the world.By leveraging blockchain and smart contracts, you can issue security tokens, comply with the securities trading rules associated with them, and purchase securities by investors in a globally unified manner.

A secondary distribution field is formed

Security tokens issued and purchased in the primary market can be transferred relative to security tokens using the transfer processing implemented in the token standard.Transactions are conducted by matching institutional investors/eligible investors who are geographically separated, and a secondary distribution space is formed.

 This improves the liquidity of previously closed unlisted securities and creates an efficient trading market.In addition, smart contracts stipulate trading methods and transfer restrictions, which requireless intervention by national and regional financial authorities and financial institutions in secondary distribution.

What’s the private placement?

Currently, more than seven percent of capital market financing is raised through private placements.However, from the investor’s point of view, the opportunity to buy securities issued privately issued is limited, so it is difficult to invest large amounts of money, and as a result, issuers are also difficult to raise funds flexibly.In this private placement capital market, the primary market and secondary trading mechanisms utilizing blockchain are expected to meet potential funding needs and streamline the market with flexible financing.

 Compared to the public offering market, which already has a certain level of liquidity, the private placement market has a greater impact on the introduction of blockchain.

Development of new financial products

Unlike regular securities, security tokens that can be treated like cryptocurrencies on a blockchain can be handled automatically with smart contracts.In the sense that this feature is emphasized, it is sometimes referred to as “programmable” securities.Taking advantage of this feature, it is possible to combine multiple securities and develop new financial instruments backed by various assets.

 Even if it is a complex financial instrument, it is transparent on the blockchain, allowing investors to understand the cash flow of the underlying asset in a timely manner.As a result, it is possible to avoid the fact that “multiple securities are complicated and the risk of the underlying asset cannot be grasped”, such as the securitized commodity of the subprime loan which originated in the financial crisis.

Securitization and smallization of assets/rights

In addition to stocks and bonds, security tokens can be used as securities to issue and distribute a variety of assets and rights.

 Securities are programmable assets that allow investors to purchase and use those securities using wallets offered on websites and apps, which more than ever match the issuer and investor’s needs. It is possible to customize the fine securitization products.It is also possible to make small-mouthed things that individual investors can purchase.

Opening of private placement capital markets

By using blockchain to open private placement capital markets, investment opportunities are expected to increase and “financing opportunities” will become more diversified than ever before.

Increase disbursement of investment opportunities

In the past, securities issued in unlisted private capital markets did not have a secondary market, and institutional investors had no way of buying or selling securities other than relative trading.

 However, security tokens use blockchain, which allows smart contracts to create a secondary market for pseudo-listed stocks and provide liquidity and transaction prices to institutional and eligible investors.

 It also makes it easier for new institutional and qualified investors to enter the secondary market and invest.Investors around the world can expect to be able to invest at lower hurdles in both the primary and secondary markets, increasing investment opportunities and volume of transactions.

Diversification of funding methods

In the past, private funding was conducted in a manner in which individual funding was filed with a securities company or law firm and applied to regulatory authorities.The security token issuance platform works with law firms to localize protocol specifications to comply with the regulations of financial authorities in each region of the world, enabling companies to propose the best suppliers.

 In addition to traditional stocks and corporate bonds, it is possible to design and issue securities that are more flexible depending on the requirements of the issuer, allowing issuers to choose a financing method in line with their business model and business model.The diversification of the financing methods of these companies leads to risk diversification and stabilization due to the diversification of capital structures.

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