A recent blog post published on Pension & Investments mentions that several fintech executives think blockchain technology could significantly help increase liquidity in the “small-cap equity markets.” Distributed ledger technology (DLT) supporters claim it has “the potential to make small-cap trading more efficient, transparent and cheaper,” the blog noted.
SEC’s “Tick Size” Pilot Program Ends
Fintech professionals who’ve recommended using a blockchain-based system for liquidating and trading small-cap company’s issued stocks believe the distributed ledger can assist in providing a more effective approach compared to the US Securities and Exchange Commission’s (SEC) “tick size” pilot program – which has now come to an end.
As described on the SEC’s official website, the tick size pilot program is a “national market system (NMS)” enabling the Commission itself, market traders, and the general public to determine the effects of “wider minimum quoting and trading increments” on the liquidity of “common stocks” belonging to smaller firms.
Explaining how blockchain technology may be used to enhance liquidity for common stocks, its proponents say that small-cap shares could be converted into tradable tokens, much in the same way that initial coin offerings (ICOs) are launched by cryptocurrency startups.
Helping Small-Cap Firms Launch IPOs
Some fintech professionals think that being able to trade blockchain-based tokens could make it more practical for small companies to launch initial public offerings (IPOs) that allow a significantly greater number of their common stocks to be issued and traded – which is precisely something the SEC had been trying to achieve with its tick-size pilot.
Commenting on how blockchain may be used to issue more tradable shares, the newly appointed managing director at Ideanomics (a digital asset production and distribution firm), Kate Lam, said:
You get more liquidity when there are more people who'll play in the space, more people willing to make quotes, more people to do price discovery, all at the push of a button.
Lam, who’s now managing Ideanomics’ asset-backed blockchain-related financial products and fixed income investment options, explained:
If returns are affected by lack of liquidity, [then blockchain] solves for that. If returns are affected by cost, it solves for that. The more players there are in the market, the more efficient it becomes.
Not All Economists Like Blockchain
Not all economists are as confident in blockchain’s potential to improve current economic or supply chain processes. As CryptoGlobe covered, renowned economist and Harvard graduate, Dr. Nouriel Roubini, referred to blockchain as merely “a glorified spreadsheet.”
However, Roubini’s views don’t seem to have discouraged many established companies from launching their own blockchain-based pilot programs and also deploying production-ready DLT-based solutions.
In fact, Walmart Inc., one of the world’s largest retail corporations, has partnered with giant tech firm IBM to develop a blockchain-enabled food safety program.
