In a significant development for the financial sector, Citi and SIX Digital Exchange (SDX)—the digital assets-focused division of Switzerland’s main stock exchange—are collaborating on a pioneering initiative to tokenize non-publicly traded shares. This partnership aims to enhance efficiency within a $75 billion market that is commonly bogged down by cumbersome paper documentation and outdated processes.
Acting as both custodian and issuer agent, Citi will facilitate the tokenization of late-stage, pre-IPO equities on SDX’s regulated blockchain-based Central Securities Depository (CSD) platform, set to launch in the third quarter of this year. Though the platform will not include U.S. investors, it offers global access with initial emphasis on Switzerland, Singapore, and other regions across Asia.
The allure of private shares in high-growth, venture-backed companies remains strong, forming a considerable segment of an alternative asset class estimated to be worth trillions of dollars. As firms with valuations exceeding one billion dollars choose to remain private for extended periods—often due to delayed IPOs—the need for secondary markets to facilitate liquidity for investors and employees has become increasingly pressing. However, the current landscape presents significant access challenges, exacerbated by manual and cumbersome transaction processes.
Nisha Surendran, digital asset emerging solutions lead at Citi Ventures, remarked, “The most notable characteristic of private markets is that there is no infrastructure, at least nothing scalable.” Investors often confront a daunting array of PDFs and paper documents, with transaction settlements stretching from five to eight weeks—complexities that repeat with each desire to exit a position.
The inherent lagging nature of these investments is compounded by their absence from investors’ wealth statements, trapped in a maze of documentation rather than integrated into their portfolios like public securities.
While the concept of tokenization of real-world assets has gained traction among financial institutions in recent years, the initial enthusiasm around blockchain-enabled private markets has not translated into substantial outcomes. Regulatory hurdles have stymied many optimistic Web3 projects that aimed to leverage blockchain technology to enhance efficiency and accessibility in private markets.
David Newns, CEO of SDX, highlighted the mature regulatory framework surrounding digital securities in Switzerland, stating, “We’ve been doing this now since 2021,” contrasting it with other regions where such clarity is lacking. He noted that despite the promising technologies, challenges remain in areas such as distribution and the legal standing of investments.
SDX’s blockchain-based securities depository utilizes R3’s Corda distributed ledger technology, providing investors with access through a dematerialized securities construct facilitated by their brokers and custodians. This seamless integration allows securities to appear in investors’ bank accounts akin to traditional securities, requiring no special actions from investors to engage with these new financial instruments.
With this announcement, Citi not only steps into the role of custodian for SDX but reinforces its commitment to enabling clients to tap into new digital asset markets globally, including private market assets. Nadine Teychenne, Citi’s global head of digital assets, investor services, and issuer services, indicated that the project reflects a coordinated effort across multiple sectors of Citi’s business.
Further enhancing accessibility to pre-IPO equities on the SDX platform, digital asset banking group Sygnum and Singapore-based financial institution SBI Digital Markets will collaborate with Citi, creating a robust ecosystem for investors looking to engage in this evolving landscape.
Read more: Citigroup Unveils Token Services for Institutional Clients
