With hopeful headlines in major publications and plenty of hype in the traditional financial sector, security tokens are the hottest new investment product around. All of the excitement seems to center around what digital securities can do for the buyer of the security, however, and while there’s many such advantages, the nature of digital securities actually more directly impacts another player in the securities business: the broker.
The Problem With Analog Securities Sales
Put simply, brokers are registered securities sales professionals who leverage their own network to help clients sell securities and raise capital from certain sources like family offices, venture capital, and private equity. In return, they receive a portion of the funds raised as a commission -- and they certainly earn that cut.
The securities broker business is, first and foremost, time-consuming. It’s not just the many hours it takes to produce the paperwork needed to begin even the slightest sale or change, it’s the months it takes to actually take such deals from beginning to end. During this time, legal requirements for the use and transfer of funds keep liquidity low, making the sale itself a major imposition on the company’s behavior.
This makes risks high, as even engaging in a sale of equity can often require such a large investment of time and money that companies shy away entirely. Without the agility of a digital sale, the arthritic legacy securities business tends to drive a diversity of both sellers and buyers away from potentially profitable ventures.
Traditional securities sales also offer limited outreach to global pools of investors. Their limited personal relationships with investors put a hard upper limit on the potential for funds raised in early rounds of funding, especially for globally-focused businesses. “Retail” investors are frozen out particularly effectively, with their lower maximum level of investment and lesser ability to absorb losses.
But almost every problem mentioned thus-far has a ready-made solution in the digital age. All that’s left is to watch while the industry reforms around this new status quo, and to use this transition to generate the greatest possible gains.
Digital Securities Fix The Broker Business
The transition from selling private securities to selling digital securities through STOs and similar funding events is similar to the transition from selling consumer products in physical stores to selling those same products online. In both cases, the digitization makes costs lower and potential transaction volumes higher, making the process more profitable and enjoyable for everyone.
One major way digital securities can do that is by allowing the automation of compliance. Navigating the various local, national, and international regulations necessary to sell securities is one of the biggest hurdles to any security sale, but with modern token issuance platforms it’s getting easier. Rocket, from Vanbex Labs, boasts automatic compliance for its sales, so brokers can spend more of their time finding the right investment, and less fighting the miasma of regulation that surrounds it.
This lets brokers deliver increased value to their clients by offering increased liquidity for digital sales, which directly helps to keep sale prices high. Traditional securities, which become far less liquid throughout a regular private sale, almost always post significant discounts to account for their illiquidity, and attract investment in spite of their inherent riskiness. By alleviating much of that risk with exposure to the larger, more agile market of digital investors, STOs and other digital security sales offer immediate advantages to brokers and their clients.
Advanced digital securities platforms like Rocket also create secondary trading venues where private securities that are not listed on any exchanges can be transferred between platform investors. This further increases liquidity and helps keep small, transient changes in regulation from bringing digital trades to a halt. Again, this helps to increase liquidity and decrease the risks normally associated with locking money into a security for months or even years after the sale.
That lets more people get into investing, and it lets them invest more money in each opportunity they see, increasing funds raised and generating additional income for the broker -- all in exchange for reduced delays and hassle.
Get Onboard With the Digital Future, Or Get Left Behind
Digital securities are the future of investing, so brokers who choose to ignore the many possibilities of this fertile new space may end up regretting the decision. An increasing number of clients are looking for a broker with skills in digital trading, but STOs offer such financial potential that they will soon be on the minds of even older, purely returns-focused investors with little interest in novel technologies.
In the world of securities, profits are king, and with STOs brokers can make more profit with less hassle. That’s great for investors themselves, but with the incredible increase in transaction volume that will come with the opening of a true retail securities space, it’s the brokers who will reap the biggest rewards of all.