[NEWS] Financial Services Agency to ease regulations to expand issuance and promote the spread of digital securities

It has been learned that the Financial Services Agency will revise the Cabinet Office Ordinance and relax regulations in August to promote the spread of STs (digital securities: security tokens) backed by real estate and other assets. The Nihon Keizai Shimbun reported on the 8th.

By allowing one financial group to handle everything from issuance to underwriting and sales, it will promote the expansion of the number of products and make it easier for investors to purchase. At the same time, the Japan Securities Dealers Association will develop rules to protect investors.

STs are tokenized by issuing corporate bonds and other securities on a blockchain. In addition to the advantage of being easy for individuals to purchase by breaking them down into units of 1 yen, being issued on a blockchain means that they can be traded 24 hours a day, 365 days a year in principle.

The cumulative amount of domestic issuance in fiscal 2023 is 100 billion yen. Of this, 85% is ST backed by real estate properties.

STs are often created by trust banks, who are entrusted with management by the holder and create small-sized securities in the form of trust beneficiary rights. STs are underwritten by securities companies and sold to investors, but until now, securities companies within the same group could not underwrite them in order to ensure transparency in price determination.

With this deregulation, not only can they be issued by the same financial group as the issuing company, but underwriting and sales can also be carried out consistently, and since profit forecasts can be made, it is expected that the number of digital securities cases will increase.

After deregulation, in order to ensure transparency, it will be necessary to disclose the process of price determination discussions. In order to maintain transparency in price determination, the Japan Securities Dealers Association will expand the items that financial institutions disclose to investors in line with the deregulation. In addition, to protect investors, it will require trust banks that issue STs to disclose the process of price determination discussions with independent securities companies outside their own group, whether or not they paid fees, etc.

The rules stipulate that it is appropriate to calculate the valuation value by a real estate appraiser or a certified public accountant when setting the price. Approval of the independent securities company is also a condition.

The expanding ST market

Currently, the ST market size is expanding all over the world. Boston Consulting Group estimates that the global issuance of ST, which was $310 billion in 2022, will reach $16 trillion in 2030.

There are also moves by stock exchanges to create markets for ST, and the SIX Group, which operates the Swiss Stock Exchange, operates a digital asset trading market. Intercontinental Exchange, which owns the New York Stock Exchange, has also invested in tZERO, which provides digital securities trading services.

In Japan, Osaka Digital Exchange (ODX), which is funded by SBI Group and Sumitomo Mitsui Financial Group, has opened a private trading system called "START" and began trading ST in December 2023. Japan Exchange Group (JPX) also aims to establish a secondary market for ST by the end of fiscal 2024.

Reference: Nikkei
Image: Shutterstock

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