Exploring Maintaining a Shareholder Registry and Tokenizing Funds within a Variable Capital Company

This is the continuation of the 2nd epoch of the blockchain era, where tokenization of <insert financial asset> onto blockchain was the most trendy notion. Skepticism of blockchain remained strong due to the hype of the previous era, including from myself with experience of implementing information systems for records keeping. Just another day of working on innovative projects. I remember leaving out the term "tokenization" from the era's summaries due to not being able to present a convincing argument which incorporated both the trendy Web3.0/digital assets/decentralization and the “un-cool” tech frames. Without such a frame to tie the narrative together, the result would be a highly technical summary, describing the process in an ill-defined manner. To satisfy myself, I used tokenization as the frame that held the narrative together. The FI is still active. The aim of this experiment was to investigate whether it's possible to record and tokenize the investor registry and the range of funds held within a Variable Capital Company (VCC) structure on distributed ledger technology (DLT), in order to see if the innovative technology can streamline the operational process and make the funds more accessible to a wider audience. VCCs are established under the Variable Capital Companies Act of Singapore, which became operative on 14 January 2020. This is a new legal framework for funds in the country. Prior to the passage of VCC corporate structure legislation, each fund operated by a fund manager had to be a distinct legal entity, with its own assets, liabilities, and investors. Therefore, the fund manager had to keep a registry of those investors in addition to the regular bookkeeping for assets and liabilities. When an investor changes from one fund to another, the fund manager needs to modify (1) the source fund's list of investors, as well as the receiving fund's; plus (2) the assets and liabilities documents for both funds. For (1), fund managers are currently preserving the investor register for each fund on their own information system (e.g. paper notebook, Excel or database, depending on their level of sophistication). Updating the investor registry and performing reconciliation are thus presently done manually. so as to ensure their suitability and expertise to handle such task. For (2), the switching process is compared to the transfer of a financial asset between distinct entities, and extra efforts must be made in order to conform to commercial standards and laws. This is usually undertaken by an outside specialist that is chosen by the fund manager to guarantee their abilities and experience when dealing with such a job. The VCC corporate structure can be utilized to kick out the inefficiencies. The VCC entity level will provide the fund manager the capacity to look after every fund and the investor register. This solution will cure (1) and (2) mentioned above, leading fund managers to cut down their administrative expenses brought about by the transfer of assets among several legal entities and the alteration of the investor registry. Nevertheless, VCC fund managers must furnish the investor registry to regulatory, supervision, and law enforcement entities upon request. This demands not only an up-to-date overview, but also a pathway of proof that authentically and honestly documents any alterations achieved to this point. By doing so, internal transfer inside a VCC organizational composition may not be used with underhanded goals, for instance money laundering or indirectly supporting terrorist financing. The necessity of holding onto the initial record is strongly connected with the pledge made by DLT. The dream of DLT is a system where users of the network can maintain a reliable source of data via a consensus approach as an alternative to relying on a central authority. Additionally, preserved records are immutable, providing extra assurance that no one has meddled with previously recorded data. This experiment centers on exploring if a shareholder registry for an FI can be maintained on a DLT platform, as it matches the use-case and features promised by the technology. The FI has envisioned each fund to be a node that holds its own registry, which will be secured by the inherent properties of DLT. If this effort is successful, it can show that a golden record of who-owes-what can be kept on a distributed ledger technology (DLT) platform. Such a foundation would set the stage for the next phase of the experiment, wherein resources in a VCC (Virtual Currency Circulation) can be tokenized. The tokenization process allows for ownership of a portion of the fund to be extracted from the hard-to-access bookkeeping entries on the balance sheet of a VCC, and converted to a tradable token that can be readily and simply transacted. The DLT platform offers advantages over traditional methods due to its accessibility and transparency, which can solve the struggles funds experience when attempting to (1) find buyers and sellers; (2) keep costs manageable; and (3) make investing more accessible. In order to make the experiment simpler, the focus is placed on tokenizing Closed End Funds (“CEF”) into the same Distributed Ledger Technology (DLT) platform. CEF is a collective investment model composed of a fixed number of shares, which cannot be redeemed from the fund and cannot be expanded by the fund manager. The only option for prospective investors is to acquire such shares from existing investors in the market. Given that the initial tokenization needs only to be done once, the complexity of the experiment is reduced, reducing the challenge to making trading and settlement of the tokens more efficient, as the initial tokenization is accomplished through a manual process. The experiment has the potential to offer fund managers a new way to maintain a reliable investor registry, with an unchanging audit trail that can be provided to authorities on request for VCC corporate structure. Moreover, if this indelible source of documentation can be established, it can likely create the opportunity to tokenize more funds under a VCC corporate structure.

Source: https://medium.com/@notherArmchairEconomist/experiment-to-maintain-investor-registry-and-tokenize-funds-under-variable-capital-company-ed20b404778f?source=rss------fintech-5