How distributed ledger could take you from startup to IPO


The FCX platform combines technological and regulatory expertise and rigour to tokenise securities securely.
David Ferrall founded FinClear, the parent company of FCX | Image source: Supplied

Lived experience can be a creative catalyst for an entrepreneur.

In 2015, David Ferrall founded FinClear, the parent company of FCX, Australia’s first securities platform for unlisted companies built on distributed ledger technology. When he built FinClear, he realised there was nothing similar for unlisted companies.

“We saw, as an early-stage startup company ourselves, that there was nothing like in our world in the unlisted world,” he tells Forbes Australia in an interview.

He founded FinClear in 2015 with the idea that clearing and settlement in Australia needed more competition. Now, the business services one in every two listed product transactions flow through ASX and Cboe Australia every day.

Since its launch in November, around 30 companies have joined the FCX platform, from startups to the largest being FinClear, which was valued at around $500 million when they raised $20 million about a year ago, Ferrall says.

“We’re applying our knowledge, expertise, capability and highly-trusted position because there’s been a lot of noise in the past five months about crypto and some of those exchanges and the fact that they were not regulated.

“We’re regulated by ASIC and by the ASX. We’re highly regulated. We hold large amounts of capital and liquidity as part of our business. We’re highly trusted; we clear and settle for most of the big stockbrokers in Australia, a lot of the big banks. We’re a highly trusted counterparty. We’re applying that capability, that expertise, that trusted counterparty status into unlisted securities.

“The FCX platform combines technological and regulatory expertise and rigour to tokenise securities securely, which is a totally different proposition to a cryptocurrency,” he says.

Individuals, superfunds, corporates and advisors can open an FCX wallet and deposit cash into a bank account, generating a cash token in their FCX wallet. The cash token can be used to buy and sell shares, and unlisted companies can use the platform to raise funds.

The last time they raised capital, Ferrall says, he had one person working on it shuffling paper for three months.

“I take ourselves [FinClear] as an example. We’re a seven-year-old company. We’ve been a pretty high-growth company, literally from being nothing to being quite dominant in our space. And we’ve been through three or four capital raises ourselves, and they’re just horrible.

“Our background and expertise has been in public markets. We provide execution, clearing services, and clearing settlement for listed securities, and we provide access, and capability for those capital raisings as well. Listed markets run very, very efficiently. But we think there are some things that we do on the tech side that we can provide improvement for unlisted companies, particularly early growth companies. There’s no centralised platform capability for them to sit on.

“There’s nothing like the sort of automated tools that we are providing. There’s nothing like the sort of portal for the cap table management registry that we are providing. If I’d had the capability seven years ago to go on to something like FCX, I would have been there in a flash, and that’s what we’re seeing with unlisted companies.”

Distributed ledger is ‘the future’

He says the platform automates everything and uses distributed ledger, which Ferrall believes will be “the foundation of new capabilities for capital markets”.

“The great thing about distributed ledger technology, and the reason why you’re starting to see it being employed by some of the biggest exchanges and clearing and settlement firms globally, is that not only is it a secure database in real time that anyone can have access to, but what it lets you do is start to put smart contract capability around that ledger.

“That’s where you can start to automate functions. As a shareholder, your shares are now tokenised and sitting on the ledger; you have the capability within your digital wallet to bring cash in and tokenise it now. You can then automate that process around buying shares.”

The cash is already sitting in a digital wallet to buy secondary or primary shares in a company on the FCX platform. To facilitate the transaction, the cash moves from your digital wallet into trust automatically and then is moved into the corporate – a singular automated transaction performed by a smart contract.

Companies are charged a nominal fee for using the platform – depending on their valuation, anything from $500 to $1500 a year – and 1% to trade shares, whether it’s a buy or sell.

“We believe that distributed ledger is the future for financial markets,” says Ferrall. “Some smaller counterparts are doing part of what we’re doing, but they’re not providing the full platform capability. They’re not highly regulated as we are, and they’re not using distributed ledger.”

Ultimately, Ferrall says he expects to have 100 companies on the platform within the next six months and around 200 within 12 months.

 “In phase one, we want to deliver these automated tools over the next month. And that allows the companies sitting on our platform to have a much more holistic and seamless, frictionless process for them to raise capital and go through liquidity. Once we do that, we think that the floodgates will open.

“Within a half year, I think we’ll have 100 plus companies. Within a year, I think we’ll have 200 plus companies on the platform.”

He says the other key initiative involves a licence application with ASIC to become an exchange.

“Not a tier-one exchange; it’s not being a competitor to the ASX. What we’re trying to do is build out a holistic lifecycle for companies to go from very early stage through to maturing, being able to provide liquidity for the shareholders. Then if they want to, as they get going, they might want to go to a public listing on the ASX.

“Our exchange capability will be a tier two exchange. It will be a liquidity venue for those companies to schedule liquidity events, either secondary or primary events, again, in a very automated fashion.”

FCX aims to provide a full lifecycle capability to go from a very early stage with all the efficiencies of sitting on a platform. Then, if a company gets really big and successful and wants to go to a public market, they will have done a lot of the heavy lifting, Ferrall says.

“If you look at the ASX, it’s got more than 2,000 companies listed on it. About 50% of those companies probably have a market cap of less than $50 million or $100 million. From a compliance and legal perspective, it could cost a $50 million company about $1.5 million a year. The costs are significantly lower for those companies to sit on something like FCX.”