On June 24, 2021, Hg Exchange (HGX), a private securities exchange formed by an alliance of leading capital market intermediaries, announced its milestone graduation from the Monetary Authority of Singapore (MAS) Fintech Regulatory Sandbox with a Recognised Market Operator (RMO) license awarded by the MAS.
With this RMO license, HGX can now fully operate as Asia’s first member-driven private exchange to support the issuance and trading of both digital and non-digital capital market products. The exchange has also appointed Eric Neo Say Wei as President and promoted Willie Chang from Chief Operating Officer (COO) to Chief Executive Officer (CEO) to drive HGX’s business growth in Asia.
HGX’s graduation from the MAS Fintech Regulatory Sandbox indicates that HGX has demonstrated compliance with rigorous regulatory requirements and ensured its structure and operations are in accordance with local and international standards and best practices. Activity on the exchange has been robust since September 2020, when HGX announced its first trades. Thirteen different products have been successfully listed with a total average monthly trading volume exceeding $500,000 in the last six months.
TechNode Global had the opportunity to interview Willie Chang, Chief Executive Officer of Hg Exchange, where he shed light on how innovations are providing investors and companies with more flexibility in terms of cost, timing, control, and risk.
Chang has twenty years of experience spanning fintech, investment banking, and management consulting. He most recently built and launched Wowoo Exchange Singapore, where he also served as CEO. Previously, Willie was the Head of Strategic Planning and Business Development at Mizuho Securities in Singapore and also held management positions at Lehman Brothers and Deloitte Consulting. He has an MBA with Honours from the Kellogg School of Management at Northwestern University.
Here is our edited interview in full.
What are the trends driving innovation in the capital markets today?
There is a lot of inefficiency in capital markets today, in particular for private capital markets. There is unequal access to capital for those looking to raise money and unequal access to opportunities for those looking to invest. Many marketplaces are fragmented and limited by product, geography, and other factors. In many cases, the marketplaces are not regulated, and this leads to issues with trust and risk. The end result is limited market transparency and trading liquidity.
Hg Exchange (“HGX”) was launched to address these inefficiencies. Our goal is to build a broad and liquid marketplace, connecting issuers to a global investor network. Issuers can list a variety of capital markets products, ranging from traditional financial instruments like equities and fixed income all the way to more innovative products like asset-backed securities for whiskies. We are also licensed by the Monetary Authority of Singapore as a Recognised Market Operator, which means we must maintain high standards across our financial, risk, and technology management.
Our marketplace is also powered by blockchain technology, allowing faster and lower-cost trades.
There is a trend around new or innovative means of raising capital — for example merging with SPAC instead of traditional IPO, decentralized finance, venture-debt, tokenized fundraising, and the like. Can you tell us about the impact of these on the management of capital and on fundraising for companies?
All of these innovations give issuers more flexibility, allowing them to choose how to raise funds based on the right balance of cost, timing, and control. In the traditional world, an IPO on a major public exchange was typically the end goal. But the traditional IPO process is not a one-size-fits-all solution for everyone. What is exciting about HGX is our ability to support other financial products. This means it is not only the issuers who have a choice but also the investors who have a choice on what financial products best fit their investment goals and risk tolerance. And in almost all cases, the resulting financial product can be listed and traded on HGX.
What are the 3 key challenges for companies raising capital or for investors providing capital to businesses?
The first challenge is uncertainty. Many startups face the uncertainty at the funding stages. Be it getting the right investors, getting enough capital that is required, or potentially getting rejected by investors, venture capital firms, and so on.
Secondly, viability. Investors will need to be convinced if a certain company’s business model has potential in terms of scalability and is able to provide good return on investments. They also need to “buy-in” into the motivation and directions of the founders they meet.
Lastly, it will be stability. If the company does not perform to target consistently or there are persistent issues, there are potential red flags for any investors and may result in investments being pulled.
What advantages will private capital markets offer in addressing these challenges?
Flexibility is key. Because private capital markets can support a wide variety of products, companies that are considering alternatives to a public IPO now have many options to raise money. They can list shares but can also list debt products or even list other assets.
As for uncertainty, viability, and stability, an HGX listing gives issuers access to a regulated marketplace that provides many of the advantages of a public exchange, raising the profile of the company, and providing price discovery. In the case of an HGX listing, deals can also be structured to allow shareholders to retain more control or conversely to expand the number of shareholders.
Tell us about the process involved in the MAS Regulatory Sandbox. How important is regulatory compliance in establishing trust in the FinTech industry?
The MAS Fintech Regulatory Sandbox provides an environment for companies to experiment with innovative FinTech products and services.
To encourage innovation in the financial sector, the sandbox was established to allow firms to operate and test their products and services within a clearly defined space. For HGX, we were allowed to operate as an exchange but with some limits on the number and size of trades that could be performed. Many leading Singapore-based fintech startups started in the sandbox before ‘graduating’ and getting licensed for their respective activities.
As fintech ecosystems continue to grow, it is imperative for governments and regulatory bodies to establish risk management safeguards to protect market participants and especially investors.
Therefore, Hg Exchange’s recent graduation from the MAS Fintech Regulatory Sandbox was a crucial milestone for us. The Recognized Market Operator (RMO) license helps validate that Hg Exchange has demonstrated compliance with rigorous regulatory requirements and that our operations and structure are in accordance with local and international standards and best practices.
Tell us about your founding of HGX, your team, and how the partnership/conglomeration of financial intermediaries will provide better solutions to the private capital markets.
Hg Exchange was started by a group of leading financial institutions who recognized the challenges and inefficiencies with existing private capital markets which I described earlier.
We are the first private securities exchange in Asia built and structured around our Member Firms, providing investors access to high-growth private companies and other capital market products globally and in the region. What exactly does it mean to be built and structured around Member Firms? Clients of our Member Firms can immediately access our platform to trade. At the same time, our Member Firms introduce and list financial products to the exchange and often have unique access to deals based on their strengths and market focus. With the three Member Firms we have today, our marketplace already consists of over 500,000 investors.
In addition to the products we already listed, there are over $100 million in potential deals under discussion. But it does not stop with three Member Firms. We are looking to add more Member Firms, to connect an ever-increasing number of investors to an ever-increasing number of products.
Current HGX Member Firms are Fundnel, PhillipCapital, PrimePartners and each one is a licensed financial institution with a strong network of products and clients. Additionally, we work closely with blockchain platform provider Zilliqa which powers Hg Exchange’s blockchain technology.
Finally, while we support blockchain trades, we also provide flexibility to list and trade non-blockchain products as well.
Where do you see the capital markets in 5 years? How about the longer term?
I believe there is going to be a much greater diversification of investment opportunities and financial products. The types and amount of alternative investments have already been increasing and I expect that trend to continue. Eventually, it will be a world where people can trade in any product that can be securitized — already we are discussing ideas like even trading in intellectual property.
At the same time, I see the trading platforms that list these products becoming bigger, more secure and more accessible. Ultimately, it should become very easy and very cost-efficient for people to trade on a private securities exchange – and this should attract more and more investors to platforms like HGX.
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