Cedric Edmonds, founder of BloxSys, has created a securities settlement system for the insurance linked securities industry which allows the dematerialisation of insurance linked securities, their settlement at initial offering, their trading and settlement during their life and finally their redemption at maturity, replacing the role of, for example, Euroclear or DTC.
This solution takes securities transformed by the Replexus Group and places these on a private, permissioned blockchain built upon 'Bitcoin Core', the blockchain which underpins bitcoin. Investors each have their own node which they can either run themselves with BloxSys providing support or alternatively they can use a node hosted and maintained by BloxSys.
By holding securities on the blockchain investors likely save on custodial fees which are typically based on asset volume. Secondary trades and their settlement are simple and quick without need for back-office work where errors can arise.
Sponsors benefit from not paying sometimes significant investment banking fees required for a syndicated issue on Euroclear or DTC.
With all the cost savings smaller transactions, which would typically be done using collateralised reinsurance to create illiquid investments, are possible as liquid and electronically tradeable instruments. This innovation changes what was an illiquid market into a liquid market. It provides the ability to sell securities at any point in their life, even when in extension, provided an interested buyer can be found. The ability to now purchase extended (or distressed) securities can pave the way for a market in such securities to build, bringing other participants to the market or allowing existing participants to set up new funds with a completely new mandate for investors who are seeking an alternative investment but still within the ILS market.