Japan financial services company Tokai Tokyo Financial Holdings and Singapore-based private market exchange ADDX on Wednesday announced a new partnership to offer fractional private market investment products to investors in Japan after Tokai Tokyo secured a security tokens license from the Japanese regulator.

With the new license, Tokai Tokyo and ADDX plan to collaborate on security token issuances by Japanese real estate companies and banks, both parties said in a joint statement.

These future deals will be tokenized on the ADDX platform before being distributed by Tokai Tokyo to sophisticated investors in Japan.

In addition, Japanese investors will be able to trade digital securities on the ADDX secondary exchange through Tokai Tokyo.

With this new business partnership, ADDX expects a significant increase to its revenue from the Japanese market.

Under the tie-up, Tokai Tokyo will be the first company in Japan to distribute security tokens that are tradeable on a secondary exchange. It will also be the first in Japan to deal in security tokens for non-liquid assets, as previous security token licensees received regulatory approvals for liquid assets.

For Tokai Tokyo and ADDX, this is a partnership that began in 2019 when Tokai Tokyo made its first investment in ADDX, previously known as iSTOX.

Tokai Tokyo was also a lead investor in the $50 million Series A fundraising round by ADDX in January 2021. Other ADDX shareholders include Japanese investors JIC Venture Growth Investments (JIC-VGI) and the Development Bank of Japan (DBJ), Singapore Exchange (SGX) as well as Temasek subsidiary Heliconia Capital.

“It took a long time to get to this point, but we now have a license for security tokens. Our future collaboration with ADDX will be key to establishing an innovative business model in Japan, where a digital security exchange like ADDX does not exist yet,” said Tokai Tokyo Financial Holdings Senior Managing Executive Officer Yuji Ban.

“We and many others in Japan eagerly anticipate working with ADDX to create investment opportunities for Japanese investors and new financing options for issuers. We look forward to working with ADDX on a variety of security token projects in the near future,” he added.

Meanwhile, ADDX Chief Commercial Officer Oi Yee Choo said Japan has one of the most forward-thinking regulators on the issue of digital securities – alongside those in a handful of other jurisdictions, including Singapore.

“This prevailing view has once again been validated by the Japanese regulator’s latest move to grant a new security tokens license,” she said.

As Japan embraces innovation in the capital markets, she opined that individuals will, no doubt, be the chief beneficiaries.

“The community of individual sophisticated investors in Japan is deep and sophisticated. Historically, they have shown a strong interest in real estate investments. But the opportunities open to them – whether in real estate or other asset types – are curtailed because of the high minimum investment sizes in the private markets. Digital securities can fractionalize investments, helping individuals to diversify their portfolios and to invest with a strategy and asset-mix closer to that of family offices or institutions. This promises several positive knock-on effects – from better retirement adequacy to a fairer distribution of wealth,” she said.

“Tokai Tokyo is one of the oldest and most trusted financial companies in Japan, with roots dating back to 1908. We expect this partnership to yield multiple deals over the next few quarters. The possibilities are exciting and limitless, given how the two companies share the same vision on innovation in the financial services and bring complementary strengths to the table,” she added.

According to the statement, digital securities are securities issued using blockchain and smart contract technology. They are more efficient to administer because the technology reduces the need for intermediaries and automates manual processes. Digital securities are also regulated and backed by real-world assets. The efficiency of blockchain allows minimum ticket sizes for private market products to be reduced from $1 million to $10,000, expanding access for accredited investors to previously out-of-reach assets, including funds, bonds, and pre-IPO equity. Issuers benefit from lower fees, the ability to reach a larger investor base, a lower fundraising threshold, as well as a faster speed-to-issuance.

The Tokyo Stock Exchange-listed Tokai Tokyo is the holding company for a leading securities brokerage in Japan. The company offers investment and trading services to investors via its network of 144 offices in Japan. It holds consolidated net assets worth $1.4 billion and has $38 billion of client assets under management.

Last month, Tokai Tokyo received a license from the Japanese regulator – the Financial Services Agency (FSA) – that allows the company to deal in security tokens, also known as digital securities.

ADDX is a full-service capital markets platform with the Monetary Authority of Singapore (MAS) licenses for the issuance, custody, and secondary trading of digital securities. Individual accredited investors using the ADDX platform today come from Asia Pacific, Europe, and the Americas (excluding the US).

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