Prometheum Founder and Soc. Gen Executive Discuss Blockchain, Crypto Regulation, and Special Purpose Broker Dealers

Interview with Aaron Kalan and Thomas Sullivan.

Paving the Way for 2024 Digital Asset Industry Optimism

The Financial Industry Regulatory Authority (“FINRA”) today approved Prometheum Capital LLC to operate as a Special Purpose Broker-Dealer (“SPBD”) to custody digital asset securities

Prometheum founder Aaron Kaplan and Thomas Sullivan, a managing director at Societe Generale, recently discussed blockchain, crypto regulation, and special purpose broker dealers in a podcast interview with John Lothian of John Lothian News. They explored how blockchain technology is poised to enhance market efficiency by streamlining operations. Kaplan highlighted the inefficiencies in traditional Wall Street systems and stressed the advantages of instantaneous settlement and improved record-keeping that blockchain can offer.

Sullivan further emphasized the need for continuity and data connection in current market infrastructure, highlighting the potential for distributed ledger technology to bridge these gaps. He cited an example of a green-backed bond issued on the blockchain with performance metrics related to environmental, social, and governance (ESG) factors.

The discussion turned to the regulatory landscape, with Kaplan mentioning the SEC’s view that most digital assets, excluding Bitcoin, are considered securities under the Securities Act of 1933. The interview shed light on the significance of a federally licensed ecosystem for digital assets, emphasizing compliance and regulatory adherence as key factors in institutional adoption.

Prometheum’s role as a special purpose broker dealer was explained as essential for handling clearance, settlement, and custody of digital assets. This federal-level licensing enables the transition away from state-licensed custodians and virtual currency exchanges. It also ensures investor protection and provides institutions with confidence to participate in the digital asset space. Kaplan and Sullivan’s insights suggested a promising 2024 for the digital asset industry, anticipating increased regulatory compliance and institutional involvement.

Kaplan emphasized that historically, many entities prioritized their own revenue interests over customer protection and market fairness. The introduction of special purpose broker dealers is expected to address these issues by providing a regulated framework that ensures investor protection and responsible participation in the digital asset space.

Sullivan added that a responsible way for the public to engage with digital assets is crucial, and compliance at the federal level will play a vital role in achieving this. The discussion highlighted the importance of federal regulatory clarity and oversight for the digital asset industry.

Kaplan also addressed the process of obtaining a special purpose broker dealer license, explaining that Prometheum’s success in securing the license was due to their belief in federal securities laws as the best regulatory framework for digital assets. They invested significant time and effort in building custom technology and meeting regulatory parameters.

Regarding the launch of Prometheum, they mentioned that custody services are expected to be available in the first quarter of 2024, with trading services for institutional and retail clients to follow. The founders expressed optimism about the development of a national market system for digital assets, similar to traditional equities markets.

Sullivan, representing Societe Generale, highlighted the gap in the market for regulated entities to engage in the issuance and trading of securities. The presence of Prometheum as a federally regulated player was seen as a positive development, providing opportunities for various types of financial instruments.

The conversation also touched on Prometheum’s Alternative Trading System (ATS), which will facilitate public trading of digital assets. Unlike private share markets, the ATS aims to offer real liquidity, depth of order book, and a comprehensive ecosystem for trading, settlement, and custody of digital assets.

Kaplan clarified that Prometheum does not trade against its customers. Instead, the ATS offers a platform for both institutional and retail trading. Sullivan highlighted the importance of having venues like Prometheum for trading various products and the need for greater market availability.

The interview included a discussion of the clearing and settlement process, with Kaplan explaining that Prometheum aims to create an entire ecosystem for the issuance, trading, clearance, settlement, and custody of digital assets under federal securities laws. The founders expressed confidence that this infrastructure would empower the digital asset industry in 2024 and beyond.

Prometheum’s focus on being a regulated infrastructure provider and their commitment to avoiding conflicts of interest were underscored. Additionally, they clarified that Prometheum has no plans to issue its own digital currency, emphasizing their dedication to providing a secure and compliant trading environment.

The conversation also touched on the regulatory/political landscape for digital assets. Kaplan mentioned that Prometheum had received attention from Washington due to its approval as a special purpose broker dealer.

Regarding potential federal legislation on digital assets, Kaplan and Sullivan expressed uncertainty about comprehensive regulations but highlighted the importance of addressing issues related to stablecoins and other digital assets. They discussed the role of different regulatory agencies, with a focus on the SEC’s capabilities in handling retail-type products.

The conversation also addressed cybersecurity concerns in the digital asset space. Sullivan emphasized the importance of thorough third-party risk management and the unique risks associated with blockchain technology, such as network forks and airdrops. Kaplan discussed the importance of following regulations and standards to enhance cybersecurity, noting that regulation helps establish a framework for secure operations.

The podcast concluded with optimism about the future of digital assets in 2024, with expectations of increased regulation at the federal level, innovation in traditional securities migrating to blockchain, and the tokenization of real-world assets. Both participants expressed their excitement for the evolving landscape of digital assets.

John Lothian Newsletter

Today’s Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

More Crypto Podcasts

HOU is the Domestic Crude Oil Benchmark on the Move

HOU is the Domestic Crude Oil Benchmark on the Move

Jeff Barbuto is trying to build a new benchmark in U.S. domestic crude oil at Intercontinental Exchange, where he has worked for 21 years running oil and is now the head of global oil markets. The benchmark is HOU, the Midland WTI contract for the Gulf Coast first started five years ago with the help of Magellan Midstream Partners.

Barbuto’s efforts to start building the new benchmark started 10 to 15 years ago as issues with supply gluts at Cushing, OK encouraged a solution to move oil from the middle of the country to the Gulf Coast.

In 2011, the Brent-WTI spread went negative for the first time, after running at about a two-dollar premium for the West Texas Intermediate the North Sea Brent crude over, Barbuto said. WTI would go as much at $25 below Brent in 2011 because of supply gluts in Cushing as more Canadian crude oil made its way to Cushing and more pipelines of crude were coming up to Cushing but not having an outlet, Barbuto said.

Technologist and Exchange Builder Richard Baker’s Deep Dive into Blockchain with Tokenovate

Technologist and Exchange Builder Richard Baker’s Deep Dive into Blockchain with Tokenovate

John Lothian News interviewed Richard Baker at the ISDA 37th Annual Meeting in Chicago. JLN spoke to the former CEO of ClearTrade Exchange about his experience creating, running and selling the exchange in this podcast interview. We also talked to him about his new enterprise Tokenovate, which uses blockchain and the ISDA agreements to build smart contracts to digitize and automate trading.