Malaysia's Securities Commission completed a pilot program testing whether blockchain technology could run unlisted and over-the-counter markets. Datuk Syed Zaid Albar, the SC's chairman, presented th
Malaysia's Securities Commission completed a pilot program testing whether blockchain technology could run unlisted and over-the-counter markets. Datuk Syed Zaid Albar, the SC's chairman, presented the results on November 28 at the SCxSC conference in Kuala Lumpur, alongside a report titled Capital Market Architecture Blueprint in a Decentralized World.
Project Castor, as the initiative was named, modeled how blockchain technology could support equity crowdfunding. Developers used Ethereum-based tokens to stand in for equity stakes and capital. Smart contracts handled rule enforcement and asset distribution once offerings closed, along with checks for know-your-customer and anti-money-laundering compliance.
The regulator envisioned a hybrid market structure containing both traditional centralized exchanges and decentralized venues powered by DLT. The SC could apply the same blueprint to other unlisted or OTC markets beyond equity crowdfunding.
Neuroware, a Malaysian blockchain firm, built the system in partnership with the commission. In a blog post, the company said: "What we find most exciting is that with a place to call its home, Project Castor has the potential to not only help the equity crowdfunding ecosystem, but more importantly, it can now help to improve the capital markets at large. This was an important factor to consider when developing the system, for it meant that it needed to be designed in such a way that was modular enough to be applied to different financial products and services."
Neuroware planned to open-source the code within weeks.
The project emerged from aFINity, the SC's innovation lab launched in 2015. The lab coordinates among Malaysia's fintech players. Since 2015, aFINity has run more than 200 sessions ranging from one-on-one meetings to focus groups and conferences, and counts over 200 companies as members.
Syed Zaid said: "The SC's focus on digitization may not be intuitive for a regulator, but fits into our statutory mandate to not only regulate but also develop the Malaysian capital market. It is our belief that, if deployed within a framework of robust safeguards, technology and innovation could be harnessed to transform markets for the benefit of investors, intermediaries and the economy at large."
Other Asian regulators moved in the same direction. Singapore's Monetary Authority launched Project Ubin in 2016 to test blockchains for payment and securities settlement. In August, Hong Kong's central bank released a blockchain trade finance platform connecting 21 banks, among them HSBC and Standard Chartered.
SCxSC marked its fifth year running as the SC's annual gathering for entrepreneurs, technologists, and officials to discuss fintech applications in capital markets. This year drew more than 1,000 attendees.
The conference concluded a week before the SC and Malaysia's central bank, Bank Negara Malaysia, released a joint statement on digital asset regulation. Under the plan, the SC oversees ICO issuances and digital asset exchanges. ICO operators and exchanges dealing in payment-linked digital assets must follow BNM rules governing payments and currency. Both categories of firms also fall under the SC's money laundering and terrorism financing prevention guidelines.
The SC and BNM said they would negotiate coordination agreements to align enforcement. New regulations were in development to place digital assets within securities law.
