Citi and Switzerland’s SDX Collaborate to Tokenize $75 Billion Pre-IPO Equity Market
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Banking giant Citi and SIX Digital Exchange (SDX), the digital assets-focused arm of Switzerland's main stock exchange, are collaborating to tokenize non-publicly traded shares in an effort to streamline a $75 billion market that relies heavily on PDFs and paper documents. Citi will serve as a custodian and issuer agent for tokenized versions of late-stage, pre-IPO equities on SDX’s regulated blockchain-based Central Securities Depository (CSD) platform, as announced on Tuesday. The platform, expected to launch in the third quarter, will initially focus on Switzerland, Singapore, and other parts of Asia, while excluding U.S. investors.
Private shares in high-growth, venture-backed companies constitute a significant segment of an alternative asset class valued in the trillions of dollars. Many firms with valuations exceeding a billion dollars are opting to remain private longer, delaying IPOs due to market conditions. This has led companies to seek secondary markets for providing liquidity to investors and employees. However, the accessibility of these markets is impeded, and transaction processes remain manual and cumbersome.
“The most notable characteristic of private markets is that there is no infrastructure, at least nothing scalable,” stated Nisha Surendran, digital asset emerging solutions lead at Citi Ventures, in a recent interview.
Investors often face a daunting array of PDFs and paper documents, and the settlement of transactions can take anywhere from five to eight weeks—a process that must be repeated for exit transactions, explained Surendran. “These investments also suffer from not being included in investors’ wealth statements like other public securities. Instead, they remain trapped in PDFs, paper documents, or other platforms,” she added.
While traditional financial institutions have been exploring the tokenization of real-world assets in recent years, initial efforts in this arena faced challenges and regulatory hurdles. SDX CEO David Newns mentioned that numerous Web3 projects aimed to leverage blockchain to modernize outdated processes and enhance access to private markets but encountered legal complexities.
“There’s a very mature digital-securities regulatory environment in Switzerland, where we’ve been actively engaged since 2021,” Newns noted in an interview. “Unfortunately, that’s not the situation elsewhere. While the technology appeared to offer solutions, issues related to distribution, instrument holding, and the legal nature of these investments remained unresolved.”
SDX’s blockchain-based securities depository utilizes R3’s Corda distributed ledger technology. Investors gain access through the dematerialized securities legal framework in Switzerland, facilitated by their broker and custodian, as explained by Newns. “It effectively means they appear in your bank account just like a standard security, without requiring any special actions from investors to access these investment instruments,” he elaborated.
This announcement also signifies Citi's role as a custodian on SDX, aligning with the bank's strategy to provide clients with access to emerging digital asset markets globally, including private market assets, as noted by Nadine Teychenne, Citi’s global head of digital assets, investor services, and issuer services. “This initiative represents a coordinated effort across multiple sectors at Citi,” Teychenne remarked in her interview.
Digital asset banking group Sygnum and Singapore-based SBI Digital Markets are set to facilitate access to the pre-IPO equities that Citi will introduce onto the SDX platform, according to a recent press release.
