DigitalX: Reducing compliance risk through smart digitization

All companies listed on the Australian Securities Exchange (ASX) must have a securities trading policy to help manage and govern how directors, managers, and employees buy and sell shares within the company. Whenever an annual report, market-sensitive information, and/or new data regarding performance of a product or service is released internally, a restricted period for trading goes into effect to prevent insider trading within the organization, as much of the knowledge available during those periods has not been publicly disclosed. 

However, it’s challenging for the ASX to provide a foolproof process for ensuring its companies’ employees and directors always trade appropriately. Securities trading violations are rife in corporate Australia for a variety of reasons, most of which stem from a lack of understanding of policy and regulations, and are entirely preventable. Understanding the rules is the first priority for companies, but consistently enforcing the policy and approvals process is where risk sets in and failures in security trading policy often occur. Given the legal requirements under the Corporations Act, any trading with insider knowledge (whether negligent or intended), will result in prosecution against the liable individual. While the legal ramifications are placed on the individual rather than the organization, insider trading poses a serious risk for the company’s reputation, impacting credibility, trust, and perception in the market. 

Drawbridge: RegTech compliance-by-design

DigitalX is the world's first publicly listed blockchain technology company who has launched and scaled two of Australia's first digital asset funds for wholesale investors. Given their mission to build regulatory technology and financial markets applications that leverage distributed ledger technology, they sought to address this major compliance and governance issue. After extensive interviews and research, they discovered that no functional technological solution existed to combat what is a major pain point for enterprises trading on the ASX. Recognizing this as a major opportunity to change the status quo, they developed Drawbridge, a RegTech compliance-by-design solution built to help compliance managers reduce securities trading-policy risks and safeguard against corporate governance disasters through an entirely digitized experience.

Drawbridge’s objective is to prevent internal trading altogether unless explicit approval has been given. This is made possible via Daml, the multiparty application development platform built by Digital Asset that enables companies to connect internal and external business processes across any infrastructure with clearly defined data rights and obligations in the application itself. The Drawbridge solution enforces compliance for publicly traded companies through a Daml-driven framework that clearly defines the rules and obligations of an organization’s trading policies and its employees, curbing accidental breaches during restricted periods. 

With some 2,200 publicly listed companies on the ASX and no easy way to govern how and when to buy and sell shares within an organization, Drawbridge helps compliance managers responsible for enforcing good governance manage securities trading with their organization, implement their securities trading policy, and provide greater awareness company-wide of compliance to prevent accidental breaches. Drawbridge takes the historically manual, error-prone process of securities trading within an organization -- typically managed through emails, PDFs, and physical paperwork -- and digitizes the entire experience. 

Seamless process connection with Daml

Because Drawbridge was written in Daml, the application is able to ingest a corporation’s securities trading policy and define when trades take place, who has permission to view certain trade data, and who has the right to approve trade requests, all across the ASX ecosystem or an organization’s distributed ledger technology (DLT) instance to ensure an accurate view of all transactions. Drawbridge allows users to create automated approval settings and see real-time staff trading requests, and because DigitalX works in close cooperation with ASX’s DLT platform, Drawbridge uses the latest securities market technologies to eliminate risks through built-in compliance.

Since January 2016, Digital Asset has partnered with the ASX to upgrade the heart of Australia’s cash equities market, replacing the 20-year-old legacy system (CHESS). Daml establishes a registry network for use across financial services and across other industries. By leveraging Daml, Drawbridge is able to access this registry network and seamlessly integrate with the rapidly emerging ASX DLT ecosystem, known as Synfini. With Drawbridge, DigitalX is helping create a new securities trading governance standard, while providing for the creation of future-facing products with the same programming language and toolkit used by the ASX. 

Join DigitalX and Digital Asset on Thursday, December 2 at 10:00 AM AEST for a webinar discussing the key challenges facing corporate governance executives. Learn how new RegTech solutions like Drawbridge are helping compliance managers reduce securities trading-policy risks through an entirely digitized experience, made possible via Daml.