Thread by @dlauer

We've got a 17th stock exchange! Sort of. This new exchange is called BSTX and it's operated by tZERO and BOX (options exchange operator). The SEC's approval resulted in some interesting headlines.

The problem is none of them are accurate.

BSTX's original intent (as far as I can tell from press releases) was to build a security token exchange powered by tZero's blockchain tech. However, it appears that the SEC was not receptive to some of BSTX's ideas.

I've read through the various filings, some of the comment letters, and the approval (sec.gov/rules/sro/box/…), so here are some thoughts.

The only use of blockchain tech here is for the historical market data product. The exchange notes that this is not novel, and is similar to something that MEMX offers. I don't think they mean blockchain, just market data products generally, but I could be wrong?

The blockchain being used for historical market data seems... gimmicky. First, I'm a big fan of blockchain and crypto. But, I always ask myself - why not a database? And here, I don't see a reason. The Market Data Blockchain doesn't offer anything a database couldn't, AFAICT.

As with every other exchange, any security traded on BSTX will clear and settle through the DTCC and NSCC. The securities can also be traded on any other exchange, none of which employ the use of blockchain tech. There are no digital tokens here.

The one thing I find interesting about BSTX is the configurable settlement option. However, the entire industry will be moving to T+1 soon & it's likely that nearly every trade on BSTX will settle T+2 until then. If you do find a T+0 counterpart, you gotta execute before 11:30am.

Probably worth including this for the value that the exchange sees in the use of blockchain tech. I don't see value in #1 relative to a traditional database. I'm a skeptic on #2, much of the industry is familiar with blockchain at this point.

Finally, broadly speaking, the exchange is modeled after traditional exchanges. Exchange listing standards are all similar to NYSE American (or NYSE Arca for ETPs), including for initial and continuing listing, and corporate governance, nothing different here.

The exchange will also offer co-location and high-speed proprietary data feeds, and so continue to facilitate the HFT latency race. That's a bit disappointing, especially given past rhetoric of tZero. Not surprising though, data and connectivity are key revenue sources for exchs.

So overall, there doesn't seem to be much here. BSTX won't be trading other NMS securities for now, so that's a bit less complexity added to markets. I assume the main argument being made here is that this is a stepping stone to those headlines of blockchain-based trading.

I'm a skeptic on that argument too. If the SEC wasn't receptive to those arguments on the initial application, it's unlikely they'll come around anytime soon. I think non-DTCC/NSCC-based clearing and settlement is FAR away (if ever), and I don't think this gets anyone any closer.

We'll see how things play out, and what kind of securities BSTX lists as they get going. The listings game is the hardest one to crack in the US, so many have tried and failed. Of course, that's why it's ripe for innovation, so let's hope something interesting happens here.