Exclusive: Q&A With Graham Rodford, CEO and Co-Founder of Archax
We got in touch with Graham Rodford, CEO and Co-Founder of the regulated UK crypto-exchange Archax to talk about security token regulations and the future of this growing industry.
CV: Starting off, can you explain what Archax is and how you are different from your market competitors?
Graham: Archax is a forthcoming regulated, institutional-grade crypto exchange, based in London and focused on security tokens. The vast majority of existing crypto exchanges are focused purely on cryptocurrencies and the retail space. There are some that are looking at security tokens and the institutional world, but Archax is different from these because of the combinations of a number of factors.
Firstly, the team and advisory board behind Archax all come from the traditional financial markets space. Many other venues have been built by technologists and crypto enthusiast who don’t understand the institutional community and its needs. The team behind Archax all come from the regulated institutional world, and know and understand the processes and controls that institutions need and expect to ensure compliance with regulators and their clients’ demands.
Secondly, we are based and regulated in London. Many other crypto exchanges have looked to peripheral markets like Malta and Gibraltar as bases and jurisdictions for regulation. Although there is nothing in principle wrong with that, our experience from the traditional financial markets world is that institutions typically want to use markets based and regulated in the main financial centres of the world. London is the world’s main financial centre, and although being based and regulated here is more costly and onerous, it is what the team are already familiar with and used to, and we believe this is a key differentiator.
Thirdly, our focus on just institutions. Unlike some other exchanges which aim to handle both retail and institutional flow, Archax will only serve institutions and all members will have undergone KYC, AML, source of funds checks, etc. So firms using Archax will know who their trading counterparties and that they are only dealing with other professional investors.
Finally our focus on security tokens. We believe that the tokenization of assets provides the most exciting ‘use case’ for blockchain technology, and one that has the potential to revolutionise financial markets by creating new global, secondary markets for illiquid and hard to trade assets, new more efficient ways of raising capital globally and better and more frictionless ways of handling the trading of traditional financial asset classes too. Archax intends to be at the very heart of this new and exciting space by providing a globally accessible marketplace for the listing and trading of security tokens from all around the world.
CV: As a regulated exchange, who is the main regulatory body that Archax has to align with and what measures do you have to conform with to ensure the exchange is compliant within your specific jurisdiction?
Graham: As a regulated exchange based in London, we fall under the UK’s Financial Conduct Authority (FCA), one of the most diligent and respected regulators in the world. We have to go through a stringent and exhaustive process to prepare for our regulatory submission to the FCA, but because the team has decades of experience of working with them and understand what they want and need to see, we are very comfortable with this. If we achieve our goal of being a London based and FCA regulated crypto exchange focused on security tokens, this will be a differentiator for Archax.
CV: While many see the increase in International regulations surrounding security tokens as an absolute necessity, others see it as a slow process that is hindering the growth of the industry - How does Archax view the current state of international regulations?
Graham: We believe that security tokens actually fall under existing regulations as they can be viewed like traditional asset classes such as equities. In fact, security tokens are not really a new asset class at all, but a new more sophisticated and more efficient way of handling existing real-world assets and asset classes. Although some regulatory clarity is needed in some parts of the world, we don’t see that as a major hurdle. Adapting to tokenization and their adoption in the mainstream will take some time as the infrastructure and required ecosystem evolves, but we believe this will all happen a lot quicker than many people expect. Archax is regulation favourable. We believe that for the most part, regulation is good for investors and helps promote best practices in business both of which are essential to our success.
CV: The security token market is expected to become a global phenomenon in the coming years. Does Archax have any long-term plans to expand globally to meet the future demand for an international regulated security token exchange?
Graham: Archax will be a global, 24x7 exchange from day one. Being based and regulated in London helps facilitate this, as London is very much at the financial centre of the world and its regulatory framework is viewed as the benchmark for all others. The open and global nature of crypto technology too means that the days of needing separate exchanges in different countries or regions focused on local listings have gone too. Having said that, Archax’s clients will be based all around the world, and we expect to expand our operations globally to serve and support this user base.
CV: What steps do you think need to happen on a technical and regulatory level, in order for this to be possible in the future?
Graham: A common definition of security tokens and how they should be handled from global regulators would certainly be ideal. From a technical standpoint, a number of different ‘tokenizer’ firms are emerging and these entities offer technical solutions for creating security tokens. There is a danger that tokens from these firms could end up being different technically and not easily interchangeable. There are though plans afoot to establish an interoperability framework for security tokens such that tokens created by different tokenizers can still be handled and traded in the same way across different markets. Archax is involved with and a key supporter of the global framework initiative.
CV: Many believe the security token market has the capacity to supercede the existing venture capital system, do you agree with this or do you see it going even further than that?
Graham: Security tokens and the blockchain technology that underpins them certainly provide a new way of raising capital that is simpler, more efficient and global in nature. The secondary market that tokens create too is something that will be attractive to capital raisers and funders alike. But Archax believes that the reach of security tokens goes far beyond just the raising of capital. Their frictionless nature, particularly in the post-trade space where real-time instant settlement can take place – means they can revolutionise the way traditional financial asset classes are traded too. Add into that the potential of creating secondary markets and unlocking liquidity for all sorts of other real-world assets too, and the opportunity for security tokens becomes a truly global and revolutionary phenomenon.