Citi Partners with Switzerland’s SDX to Digitize $75 Billion Pre-IPO Equity Market

Banking leader Citi has partnered with SIX Digital Exchange (SDX), the digital assets division of Switzerland’s primary stock exchange, to create a platform for tokenizing privately-held shares. This initiative aims to simplify an extensive $75 billion market that is currently filled with traditional paperwork.

In this collaboration, Citi will serve as both a custodian and issuer agent for tokenized late-stage, pre-IPO stocks, utilizing SDX’s regulated blockchain-based Central Securities Depository (CSD) system, as announced by the two organizations on Tuesday.

Citi plans to launch this platform in the third quarter, which will not accommodate U.S. investors but will be globally accessible, with an initial emphasis on Switzerland, Singapore, and other regions in Asia.

Private equities in fast-growing, venture-capital backed firms represent a significant and attractive section of a vast alternative asset category, valued in the trillions.

Companies valued at a billion dollars or more are delaying their IPOs longer due to fluctuating market conditions. As a result, these firms are turning to secondary markets to provide liquidity for investors and employees, but challenges persist with access and the complexity of transactions.

“The essential feature of private markets is the absence of an infrastructure, certainly one that is scalable,” stated Nisha Surendran, who leads digital asset emerging solutions at Citi Ventures, during an interview.

Investors often encounter a challenging landscape of documents and lengthy transaction settlements that can take between five to eight weeks—this process needing repetition each time an investor wishes to sell their stake, explained Surendran.

“Additionally, these investments do not integrate into investors’ financial statements like public securities. Instead, they remain trapped in files or on disparate platforms,” she added.

Though many traditional financial institutions have been exploring the tokenization of real-world assets, initial focus on blockchain-enabled private markets garnered attention, yet minimal actual advancements materialized.

SDX’s CEO David Newns noted that numerous promising Web3 initiatives attempted to leverage blockchain technology to modernize outdated practices and improve access to private markets but faced regulatory challenges.

“There is a well-established digital securities regulatory framework in Switzerland where we have been operating since 2021,” Newns mentioned in an interview. “This is not universally true. While the technology seemed capable of overcoming challenges, unresolved issues regarding distribution, legal ownership, and the nature of the investment instrument remain.”

The SDX blockchain-based securities depository is utilized with R3’s Corda distributed ledger technology. Investors can access it via the dematerialized legal structure for securities in Switzerland, through their broker and custodian, as explained by Newns.

“This means, in effect, they appear in your bank account just like any standard security would,” he said. “There is no special action required from the investor to access these investment products.”

The announcement also signifies Citi’s role as a custodian on SDX, which aligns with the bank’s strategy to give clients global access to emerging digital asset markets, including private market investments, according to Nadine Teychenne, Citi’s global head of digital assets.

“This initiative is part of an integrated effort across multiple divisions within Citi,” Teychenne noted in an interview.

Access to the pre-IPO stocks that Citi aims to introduce on the SDX platform will be supported by the digital asset banking group Sygnum and SBI Digital Markets, a financial institution based in Singapore.