NEW YORK (Reuters) - Paxos Trust Co, a New York-based regulated financial institution, said on Monday it will launch a blockchain-based settlement platform for a limited number of U.S.-listed equities after the company received a “no-action” letter from the Securities and Exchange Commission.
A no-action letter from the SEC means the U.S. agency will not take any enforcement action against a company for a service or product, allowing the company to proceed with its intended activity.
Paxos said this is the first time in half a century that U.S. equities will be settled outside a traditional settlement system. Numerous financial systems have undertaken blockchain-based systems meant to move settlement of securities onto the blockchain.
Blockchain, which first emerged as the system powering the digital currency bitcoin, is a shared database maintained by a network of computers.
Credit Suisse and Société Générale will be the first to use Paxos Settlement Service, Paxos said.
Paxos said it will begin settlement of U.S. equity transactions once two of its early adopters file for approval with the SEC to allow them to settle on Paxos. That approval should not take more than 30 days, said Charles Cascarilla, chief executive officer and co-founder of Paxos.
“If you think about what we have been trying to accomplish here at Paxos: it’s creating modern financial infrastructure in more open financial systems,” Cascarilla told Reuters in a phone interview.
“Being able to settle U.S. equities on the blockchain is an important first step. But it’s just the first step. And we’re going to continue what we have done here to be able to do more and more types of securities,” he added.
The platform will help clients reduce fees and gain access to capital otherwise trapped in the legacy settlement system, Paxos said. It will also allow the simultaneous exchange of cash and securities to settle trades and is compatible with current systems, simplifying integration.
Paxos will be able to settle a limited number of equity stocks: generally liquid, large-cap stocks that have low volatility, Cascarilla said.
Volume to be settled will be under 1% of a stock’s total volume, the Paxos chief added.
“We will figure out a way to scale this,” Cascarilla said.
Paxos launched a stablecoin last year and in September got approval from New York’s Department of Financial Services to launch a gold-backed digital token.
Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis and Lisa Shumaker