The Securities and Exchange Commission (SEC) has approved Overstock.com’s plan to issue company stock via a blockchain-based technology, according to Wired. Overstock has already used the block chain to issue private bonds, which do not require regulatory approval.
The SEC has approved an amended Form S-3 which would enable the company to issue securities using block-chain-based technology. Patrick Byrne, CEO of Overstock, was to announce the news at a San Francisco, Calif. bitcoin conference Tuesday evening. Byrne told Wired the date of issuing a public security on the blockchain is high on its priorities in 2016, but he did not say when this will be.
Overstock developed its securities-issuing technology through its TØ.com subsidiary, through which it plans to provide a “cryptosecurity” service to allow businesses to issue stock on the block chain. A client company would need its own SEC approval.
The new technology, according to Byrne, will do for capital markets what the Internet has done for consumers. It will offer a reliable, transparent and highly-automated way to track who owns a security at a given time. The technology could replace systems operated by Nasdaq and the New York Stock Exchange. It could also remove middlemen who have controlled the market. Byrne told Wired earlier in the year that there are ways under the current system to rig the market which he wishes to change.
TØ.com is one of several current efforts to use the blockchain to change the financial markets. Nasdaq OMX, which supports the Nasdaq stock exchange, is developing a system using the block chain to oversee trades in private companies.
Jeffrey Steiner, a lawyer at Gibson Dunn specializing in blockchain technology, said Overstock’s project demonstrates what the blockchain can do for capital markets. He said it can ensure transaction security and provide a complete ownership record for stocks and bonds. The block chain can reduce costs, eliminate middlemen such as a traditional exchange or a broker, and improve transparency.
Steiner said the Overstock project is interesting, but regulatory issues can be problematic since there is no precedent. Investors may be wary of the technology. But he acknowledged the financial industry’s growing interest in the block chain indicates attitudes are changing.
Byrne has long wanted to reform Wall Street and views bitcoin as a way to change society. In 2014, Overstock was the largest online retail company to accept bitcoin. It allowed customers to buy all types of merchandise with bitcoin. Byrne sees the technology as a tool to free control of the money system from big government and banks.
Bitcoin comprises a small portion of Overstock’s sales, but Byrne thinks the technology will continue to grow. He also believes the block chain will have a big influence on the stock market.
Ten years ago, Overstock was victimized by short selling, a Wall Street “dark art.” Byrne thinks a digital ledger will make this practice impossible.
Last fall, Byrne announced the company would build a system to issue stock over the Internet. It filed papers in the spring seeking SEC approval for an offering.
Overstock bought a 25 percent stake in PRO Securities, now TØ.com, a trading system that acts as an alternative to Nasdaq and the New York Stock Exchange. The system is regulated by the SEC. Earlier this year, the company adjusted its charter to allow it to manage trades in digital securities using a block-chain-related technology.
TØ.com is already issuing private bonds and tools to allow companies borrow and lend shares using the block chain.
The goal is to remove the middlemen parties that oversee a $954 billion stock loan market and to remove loopholes that allow trades to “naked short sell” shares they don’t borrow.
Some hedge funds and other groups have tested the system, according to Overstock. In its filing, it said it can issue as much as $500 million in securities with the block chain technology. While the initial offerings will mainly serve as proof of concept, the future could bring something larger.
Steiner said there are issues that need to be sorted out, but Overstock will not be the last company to undertake such a project.
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