SINGAPORE (July 22): Gibraltar, despite its tiny size, is strategically located on Spain’s southern coast, with a vantage point that overlooks ships sailing in and out of the Mediterranean. In the same vein, the recently created Gibraltar Stock Exchange (GSX) is tiny, but it aims to be a key node in the new field of listed digital debt securities and funds.
GSX is doing so via a strategic stake in Hashstacs, a Singapore-based blockchain start-up just over six months old. Hashstacs provides blockchain technology under white-label arrangements to financial institutions.
A unique proposition offered by Hashstacs is to offer on its platform the double-entry bookkeeping system — used by financial institutions to record their financial transactions. In double-entry bookkeeping, different sets of accounts have to be maintained for different parties. Blockchain, by its nature, allows for updates on transactions to be made sequentially — thus the term “chain” in “blockchain”. This means records can be consolidated and allows for an easier transition by financial institutions looking to transfer their records to blockchain. It is also easier for central depository clearing to be executed.
“This blockchain is built specifically for finance. We have designed built-in features useful for financial institutions. For example, at the consensus level, we support debit, credit, the double-entry accounting model and more,” says Hashstacs managing director Jay Ng in an interview with The Edge Singapore.
“[We do that] because when we talk to central securities depositories, they are happy to hear we support [the double-entry system], as their legacy system is built on that model. What it means when we support this [system] is that it is easy to integrate,” he adds.
Hashstacs is careful not to overturn the way financial institutions have been operating for years. Ng works to accommodate their constraints and requirements, as they are very reluctant to migrate to completely new systems. “That is almost impossible. We are able to integrate with their existing system,” he points out.
“A [big part] of the financial world is still stuck [in time] with legacy technology stemming from the 1980s. Interestingly, [the financial sector] has not seen the same kind of benefit from technology that we have seen in e-commerce,” he notes.
Pivotal moments
To a certain extent, Ng himself cut his teeth on the “legacy” financial sector. He did not set out to run a blockchain-based start-up. He worked as a trader at Deutsche Asset Management and later became the lead portfolio manager at URA. When he won a postgraduate scholarship from the Monetary Authority of Singapore to do his master’s degree at Cambridge University, he expected to serve out his bond by working in the Singapore asset management industry.
Instead, his stint in the UK between 2016 and 2017 led to a turning point. London was experiencing a fintech boom. Bankers traded their pinstripe suits for casual wear at fintech start-ups. He saw how the fintech scene was thriving and how new technology was poised to disrupt the financial services industry. Bitcoin prices were soaring and blockchain as a technology was being tested out by various industries on numerous applications, ranging from trade settlements to contracts and cryptocurrencies. Ng’s interest in fintech, specifically blockchain, was piqued.
Another pivotal moment was when Ng had a near-death experience in the UK. While he was lying in a hospital bed, three things came to mind: health, relationships and social impact. At URA, he was managing a portfolio with assets worth about $1 billion, but he did not think he was making a significant social impact. He wanted to do more. A chance meeting with an old classmate caused him to think about marrying his knowledge of asset and fund management with blockchain technology, which then led to Hashstacs.
Education, efficiency
Besides GSX, Hashstacs has another key investor: Hong Kong-listed Chong Sing Holdings FinTech Group. Nick Cowan, CEO of GSX, and Phang Yew Kiat, vice-chairman and CEO of Chong Sing, are on Hashstacs’ board and designated as founding directors. So far, Hashstacs has raised about US$3 million ($4.08 million) and Ng is on the lookout for additional funding from other investors.
GSX is not only an investor in Hashstacs but also a client. In March, the exchange deployed the start-up’s blockchain technology as a pilot for a digital stock exchange. Hashstacs hopes that more of such institutions will come on board and be part of an expanded ecosystem. According to Ng, there are more than 30 other financial institutions running pilots that use Hashstacs’ technology, and the ecosystem should grow. “In fact, GSX should be one of the smaller exchanges or firms in the ecosystem,” he says.
While equities are a major feature on other exchanges, GSX is focusing on listing bonds and funds. Its website lists four funds managed by an entity called Red Ribbon Fund Management, and also around a dozen bonds, mainly issued by Morgan Stanley.
With Hashstacs’ platform, bond issuers can do away with the manual process of selling bonds. Bond traders, on the other hand, can easily check their coupon rate and sell or redeem their bonds digitally with just a click. “What we provide is the blockchain [technology] deployed for a few banks, as well as the web application, to make it easy for users to carry out the life cycle of a bond — from the issuance to trading, clearing and settlement of the digital asset,” says Ng.
And, of course, the same technology infrastructure can be used to list and trade other assets, including equities and funds. According to Ng, the real benefit of blockchain technology is in the clearing and settlement process, which, as it is today, involves multiple steps and manual data entry. With blockchain, the processes will be made more efficient.
This is especially helpful for mutual funds that have an inefficient fund distribution process. Some funds are even known to ask customers to fax in their instructions, an outmoded practice, given today’s technology. “Once we have it on the blockchain, the entire fund subscription and redemption process can be made more efficient, and cost savings can be enjoyed as well,” says Ng.
He is upbeat on what Hashstacs can offer, but says that a lot of education is needed for the market to grow. In the six months that Hashstacs has opened for business, the company has approached more than 100 financial institutions across Asia, Europe and even as far as the Caribbean and Africa to let them know what blockchain technology can offer.
Ng sees interest from entities such as exchanges, investment banks and local dealers as well as asset managers. He tells these potential users that Hashstacs is not merely demonstrating a proof-of-concept but a production-ready platform. “What we’ve built is a production-ready system,” he says.
