SEC Approves Plan to Issue Stock Via Bitcoin’s Blockchain
The Securities and Exchange Commission has approved a plan from online retailer Overstock.com to issue company stock via the Internet, signaling a significant shift in the way financial securities will be distributed and traded in the years to come.
Over the past year, Overstock and its freethinking CEO, Patrick Byrne, have developed technology for issuing financial securities by way of the blockchain, the vast online ledger underpinning the bitcoin digital currency. The blockchain is essentially an enormous database that runs across a global network of independent computers. With bitcoin, this ledger tracks the exchange of money. But it can also track the exchange of anything else that holds value, including stocks, bonds, and other financial securities. Overstock has already used the blockchain to issue private bonds, which did not require explicit regulatory approval. Now, the SEC has told the company it can issue public securities in much the same way.
Public documents filed by Overstock show that the SEC has approved an amended Form S-3 that would allow the company to issue public securities via blockchain-based technology, and Byrne plans to announce the news this evening at a bitcoin conference in San Diego. It’s unclear when the company will actually issue a public security on the blockchain. “You can assume its high on our list of priorities for 2016,” Byrne tells WIRED.
Overstock built its technology under the aegis of a subsidiary called TØ.com, and it plans to offer this “cryptosecurity” tech as a service to other businesses, so that they too can issue stock via the blockchain. Each business would need separate approval from the SEC, but Overstock could use the system to issue stock for a third-party before issuing its own.
Byrne believes the technology “can do for the capital market what the Internet has done for consumers.” It’s designed to provide a secure, transparent, reliable, and largely automatic way of tracking who owns a given security at any given time. And in Byrne’s mind, it could replace systems run by the New York and Nasdaq stock exchanges. Such a system could eliminate many of the middlemen who have traditionally controlled the market, and thanks to its technological precision, it could close certain market loopholes. “There are all kinds of ways to rig the market,” Byrne told WIRED earlier this year. “We want to make it un-rig-able.”
TØ is now just one of several efforts to reinvent the financial markets via the blockchain. Even Nasdaq is looking at it. Nasdaq OMX, the company behind the Nasdaq stock exchange, is building a system that uses the blockchain to oversee trades in private companies, but the company says it could also apply similar tech to the public stock markets.
For Jeffrey Steiner, counsel with the international law firm Gibson Dunn, who specializes in blockchain technology, this project shows what the blockchain can do for so many markets. “It can not only ensure that there’s security in the transaction, but it provides a full record of ownership for things like corporate bonds and stocks,” he says. “It can increase transparency, reduce costs, and remove the middleman—in this case remove a [traditional] exchange or a broker.” He calls Overstock’s plan “very interesting” but notes this is new territory and the regulatory landscape can be tricky because there’s little precedent for such a thing. Indeed, many investors may be wary of using such a technology. Finance is a conservative industry, after all. But with so many outfits starting to build this kind of technology, including names like the Nasdaq, attitudes are poised to change.
Via:http://www.wired.com/2015/12/sec-approves-plan-to-issue-company-stock-via-the-bitcoin-blockchain/
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