Drill Down Ep. #257: Equiniti (BLSH:NYSE) The Official Record Dan Kramer

Cory Johnson (0:08)

Well, welcome to The Drill Down. We tell the business stories behind stocks in a move. I'm Cory Johnson. Just ahead in September, the SEC allowed tokenized stocks to trade in the blockchain for at least for five years. The CEO of Equiniti, a record keeper for about a third of the S&P 500 will tell us about the notions and hopes for a world of tokenized trading, but first, sponsor time. The Drill Down is brought to you by Aera. Never miss another critical event or insight ever. With Aera, customize your company watch lists and track key events, mentions and filings and more. All in the easy to use customizable interface. That's Aera, AI, eera.com.

I'm Cory Johnson. Welcome to The Drill Down. We explain the business stories behind stocks and move. The SEC is going to let tokenized stocks trade on the blockchain, and somebody who still has to say they legally own the shares. All that attribution is a complicated process and an interesting thing with a lot of promise. Dan Kramer is the CEO of Equinity and is diving headfirst into that world. Dan, glad to have you on The Drill Down.

Dan Kramer (1:05)

Thanks for having me, Cory. Looking forward to the conversation.

Cory Johnson (1:07)

So talk to me about what Equinity has been before this tokenization became a real possibility.

Dan Kramer (1:16)

It's hard to remember time before tokenization, but I'll go back to that.

At the core of our business, as you stated, we hold the record of who owns what in the listed company markets. So we have for 3,000 companies globally, we, for the shareholders, identify who holds stock and who doesn't hold stock. It's a very critical market function. Think of it, Cory, how can markets function if you as an investor, when you buy shares in a company, can't be confident that somewhere, somehow, that ownership is recorded?

Cory Johnson (1:48)

Right, there was a time when, I had a job once in Lower Manhattan. Well, Lower Manhattan used to have a different feel to it.

I remember even in 2000, in the beginning of the century, where there were just teams of people commuting into Lower Manhattan, going into offices and filing stuff, and unfiling stuff, and refiling stuff. I had a job once at 2 Rector Street behind the Trinity Church there, and on the third floor, it's where we launched the street.com a long time ago, was in a vault. The vault had been used for the exchange of the physical securities of the stock certificates, and it was a cheap spot, but literally there was a big bank vault door, we had an ISDN line, we would pass around to each other to log in to the internet as we were starting that business. But the notion that securities had to be physically handled was a real important part of the market, the vestiges of which are still there.

Dan Kramer (2:39)

They still are Cory, believe it or not, about 12% of the shares held in the market are still in paper certificate form. We get thousands of certificates every day that move around.

But back in the day you're talking about, there were people riding bikes around the city with certificates of ownership on the back.

Cory Johnson (2:56)

That's so fascinating. So, to enter this world of tokenization, when Bitcoin first became, when I first learned about Bitcoin and foolishly didn't buy it at $350 per unit, I remember being at a dinner, people talking about the potential uses for this Bitcoin idea. And it seemed to me that securities trading was the most obvious use case.

Talk to me about tokenization and how that might work and what you guys are doing.

Dan Kramer (3:25)

Yeah, sure. If I just continue the history tour we were on, we began with paper certificates, right? And then over the course of the 70s, 80s, 90s, began a migration to dematerialize, which we're doing. And securities are now held in digital form, either directly with us as the transfer agent or at the DTCC, as in the name of the broker, the ultimate broker who's holding the security. So the migration from paper to digital is occurring and occurring at pace. And people, they're the only people who really hold paper certificates, who actually want them now. You may want to give a share of a company to your grandchild and have them actually have an actual certificate or you may have a certificate that you have some sentimental reason for holding. But mostly shares are held digitally now.

But still, to transfer shares is a process it can take. If you want to move from one broker to another, if you want to take it from a transfer agent into the DTC, it can take a number of days. When you move to tokenization and you start putting, you put shares on chain, the ability to know that you have that record held still by the transfer agent, the message we get loud and clear from the 3,000 issuers we have is, they want all of their equities paper, digital, tokenized on one record. They don't want to have to go to different places to look. The shareholders now can see their tokenized shares in one place, and they could transfer in real-time. We talk about atomic settlement, Cory, but with the innovation exemption that you mentioned, when markets start trading, we'll be able to settle that in real-time atomically, not the next day or over a weekend, which will have significant market impact.