Additional Context
Actors
Exchanges · Broker-Dealers · Institutional Investors · Retail Investors · Regulators (SEC, FINRA) · Transfer Agents · Custodians
Problems
Problem 1: Position and Trading Privacy
Large institutional positions and trading activity on public ledgers reveal investment strategies and enable front-running.
Requirements:
- Must hide: Position sizes, trading activity, order flow, accumulation/distribution patterns
- Public OK: Security existence, total outstanding shares, corporate actions
- Regulator access: Beneficial ownership reporting (13F, 13D/G), insider trading surveillance, market manipulation monitoring
Constraints:
- Securities law disclosure thresholds (5%, 10% beneficial ownership)
- Short-selling disclosure requirements
- Real-time trade reporting obligations
Problem 2: Competitive Positioning for Exchanges
Traditional exchanges tokenizing equity need privacy to differentiate from transparent crypto venues and protect institutional order flow.
Requirements:
- Must hide: Exchange-specific order flow data, market maker positions
- Public OK: Aggregate volume, price discovery (NBBO)
- Regulator access: Full audit trail for market surveillance
Constraints:
- Best execution obligations
- Market data revenue models
- Interoperability with traditional settlement (T+1)
Recommended Approaches
Approach TBD. Consider:
- Integration with existing transfer agent infrastructure
- Privacy-preserving beneficial ownership registries
- Hybrid on-chain/off-chain settlement models
Open Questions
- How do privacy requirements interact with securities law disclosure obligations?
- What's the path from T+1 settlement to instant atomic settlement?
- How to handle corporate actions (dividends, splits) with position privacy?
Notes And Links
- Related: Private RWA Tokenization (general RWA privacy)
- Related: Private Bonds (similar DvP requirements)
- Market context: US Clarity Act draft includes tokenized equity provisions
- Regulatory: SEC, FINRA oversight; beneficial ownership reporting requirements