1 00:00:04,019 --> 00:00:06,480 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean 2 00:00:06,480 --> 00:00:10,560 Sean Aylmer: Aylmer. I've spoken before about the debacle at the ASX 3 00:00:10,560 --> 00:00:14,010 Sean Aylmer: and the handling of its CHESS clearing and settlement replacement 4 00:00:14,010 --> 00:00:18,120 Sean Aylmer: project. After seven years and $ 250 million, the modern blockchain- 5 00:00:18,120 --> 00:00:21,750 Sean Aylmer: based platform was dumped last month. The move hasn't just 6 00:00:21,750 --> 00:00:25,290 Sean Aylmer: sparked criticism of ASX, but also brought fresh attention to 7 00:00:25,290 --> 00:00:29,100 Sean Aylmer: the system's underpinning financial markets. One of the other players 8 00:00:29,100 --> 00:00:33,360 Sean Aylmer: in this space is FinClear, Australia's leading independent technology and 9 00:00:33,360 --> 00:00:37,920 Sean Aylmer: infrastructure provider for financial market access. FinClear has used the 10 00:00:37,920 --> 00:00:42,510 Sean Aylmer: same technology that would have replaced CHESS to develop FCX, 11 00:00:42,600 --> 00:00:48,479 Sean Aylmer: Australia's first unlisted company securities platform. David Ferrall is the founder and CEO 12 00:00:48,479 --> 00:00:51,089 Sean Aylmer: of FinClear, and my guest this morning. David, welcome to Fear 13 00:00:51,090 --> 00:00:51,600 Sean Aylmer: and Greed. 14 00:00:51,960 --> 00:00:53,700 David Ferrall: Thanks very much, Sean. Great to be here. 15 00:00:54,090 --> 00:00:57,120 Sean Aylmer: Just before we get on to FinClear, and particularly investing 16 00:00:57,120 --> 00:01:00,450 Sean Aylmer: in unlisted companies securities, which I think is a fascinating 17 00:01:00,450 --> 00:01:04,680 Sean Aylmer: area for investors, just some of the basics, how does 18 00:01:04,680 --> 00:01:05,970 Sean Aylmer: the CHESS system work? 19 00:01:06,870 --> 00:01:11,040 David Ferrall: Yeah. Look, CHESS regretfully is a very complicated system, and 20 00:01:11,040 --> 00:01:13,289 David Ferrall: it's made up of a number of components. Everyone talks 21 00:01:13,290 --> 00:01:17,370 David Ferrall: about clearing and settlement, and that's part of it. But 22 00:01:17,370 --> 00:01:20,580 David Ferrall: clearing and settlement are two defined pieces, but CHESS is 23 00:01:20,580 --> 00:01:23,310 David Ferrall: the underlying ledger, if you want to think of it 24 00:01:23,310 --> 00:01:28,410 David Ferrall: that way, that records individual ownership onto HIN, and reports 25 00:01:28,410 --> 00:01:33,450 David Ferrall: back that or communicates to registries and/ or custodians around 26 00:01:33,450 --> 00:01:37,140 David Ferrall: that. Clearing and settlement are very mechanical pieces. Clearing in 27 00:01:37,140 --> 00:01:40,680 David Ferrall: particular, and settlement is what we do in terms of 28 00:01:40,680 --> 00:01:45,330 David Ferrall: settling transactions to investors that ultimately then get registered onto 29 00:01:45,330 --> 00:01:46,051 David Ferrall: HIN, being that subregister. 30 00:01:46,051 --> 00:01:51,090 Sean Aylmer: Okay. The ASX issue, and it's like a $ 3. 5 31 00:01:51,090 --> 00:01:54,660 Sean Aylmer: trillion market or something like that, what kind of happened 32 00:01:54,660 --> 00:01:56,430 Sean Aylmer: in a snapshot? I don't really want to go into 33 00:01:56,430 --> 00:01:58,620 Sean Aylmer: it too much. Is it the fact that the current 34 00:01:58,620 --> 00:02:01,620 Sean Aylmer: technology is old and needs to be replaced, is that the 35 00:02:01,620 --> 00:02:02,130 Sean Aylmer: nub of it? 36 00:02:03,270 --> 00:02:06,540 David Ferrall: Yeah. Look, that was the founding proposition seven years ago 37 00:02:06,750 --> 00:02:09,510 David Ferrall: that ASX came out with, that CHESS was getting old. 38 00:02:10,020 --> 00:02:14,430 David Ferrall: It needed to improve its speed, its throughput, its redundancy, 39 00:02:14,850 --> 00:02:18,840 David Ferrall: and also needed to move to a more modern technology. 40 00:02:18,840 --> 00:02:23,040 David Ferrall: They were not able ... Greater connectivity between participants. And that 41 00:02:23,040 --> 00:02:27,389 David Ferrall: was the original logic of moving to a distributed ledger, 42 00:02:27,990 --> 00:02:33,120 David Ferrall: DLT technology, but also it was around speed throughput and 43 00:02:33,120 --> 00:02:34,051 David Ferrall: recoverability as well. 44 00:02:34,051 --> 00:02:37,830 Sean Aylmer: Okay, so you are involved in the up ... Well, you 45 00:02:37,830 --> 00:02:41,190 Sean Aylmer: certainly, you're involved in clearing some of the retail investor 46 00:02:41,190 --> 00:02:44,250 Sean Aylmer: transactions, is that right? As in, FinClear is involved? 47 00:02:44,940 --> 00:02:48,720 David Ferrall: Yeah. Look, we either directly execute clear and settle or 48 00:02:48,720 --> 00:02:53,010 David Ferrall: our infrastructure, being our technology, is used by other big 49 00:02:53,010 --> 00:02:57,600 David Ferrall: large counterparts, retail and institutional, for clearing and settling their 50 00:02:57,600 --> 00:03:00,720 David Ferrall: trades. We like to think that we touch on any 51 00:03:00,720 --> 00:03:05,370 David Ferrall: one day up to 50% of retail transactions, but we 52 00:03:05,370 --> 00:03:08,370 David Ferrall: do also transact some institutional business as well. 53 00:03:09,990 --> 00:03:14,070 Sean Aylmer: Okay. What is the technology you use, and please, David, dumb it down 54 00:03:14,070 --> 00:03:14,460 Sean Aylmer: for me. 55 00:03:15,240 --> 00:03:20,790 David Ferrall: Yeah. Look, by all means, I'm not a technologist by 56 00:03:20,790 --> 00:03:25,380 David Ferrall: background so that's easy for me. We're using distributed ledger 57 00:03:25,380 --> 00:03:31,590 David Ferrall: technology, DLT technology, and a language called Daml. It's actually 58 00:03:31,650 --> 00:03:35,040 David Ferrall: exactly the same as the infrastructure and provider that the 59 00:03:35,040 --> 00:03:38,940 David Ferrall: ASX was looking to use or is using for CHESS 60 00:03:38,940 --> 00:03:42,540 David Ferrall: replacement, but we're using it in a far more pointed 61 00:03:42,540 --> 00:03:46,830 David Ferrall: or discreet manner to solve a particular problem, rather than 62 00:03:46,830 --> 00:03:50,160 David Ferrall: applying it to CHESS, which was a much more complicated 63 00:03:50,520 --> 00:03:54,090 David Ferrall: proposition. So the distributed ledger it, if you think of 64 00:03:54,090 --> 00:03:57,630 David Ferrall: it this way, it's just another form of ledger, but 65 00:03:57,630 --> 00:04:01,200 David Ferrall: it's what's called an immutable ledger. And meaning that once 66 00:04:01,200 --> 00:04:05,340 David Ferrall: you get a record of ownership on the ledger and 67 00:04:05,340 --> 00:04:09,180 David Ferrall: agreed, it can't be altered or changed in any way. 68 00:04:09,480 --> 00:04:14,040 David Ferrall: So it's agreed by counterparts. But importantly, what it allows 69 00:04:14,040 --> 00:04:18,179 David Ferrall: you to do is start to put smart contract capability 70 00:04:18,330 --> 00:04:20,610 David Ferrall: over the top of it because as soon as you 71 00:04:20,610 --> 00:04:25,170 David Ferrall: have a security on ledger, being a share ownership, and 72 00:04:25,170 --> 00:04:30,690 David Ferrall: then potentially have, say, cash or liquidity on ledger, you 73 00:04:30,690 --> 00:04:32,940 David Ferrall: can then put a smart contract over it. And that's 74 00:04:32,940 --> 00:04:37,320 David Ferrall: where the Daml language comes in to automate functions. And 75 00:04:37,320 --> 00:04:39,780 David Ferrall: that's where you start to see what we talk about, 76 00:04:39,900 --> 00:04:44,489 David Ferrall: atomic settlement. But really, it's where you start to see 77 00:04:44,490 --> 00:04:48,659 David Ferrall: the blurring of lines between what is a market transaction 78 00:04:48,690 --> 00:04:53,400 David Ferrall: and what is post- trade, because everything happens atomically same 79 00:04:53,400 --> 00:04:57,630 David Ferrall: time. A trade and settlement happens at the same time, 80 00:04:57,630 --> 00:05:00,300 David Ferrall: there's no real distinguishing between the two. 81 00:05:00,690 --> 00:05:02,580 Sean Aylmer: Stay with me, David. We'll be back in a minute. 82 00:05:09,270 --> 00:05:12,750 Sean Aylmer: My guest today is David Ferrall, founder and CEO of 83 00:05:12,810 --> 00:05:18,570 Sean Aylmer: FinClear. Okay, so this has implications certainly in the public 84 00:05:18,570 --> 00:05:21,060 Sean Aylmer: space, so I get what you are saying in the 85 00:05:21,060 --> 00:05:24,240 Sean Aylmer: public space. Does it also open the way for other 86 00:05:24,300 --> 00:05:26,880 Sean Aylmer: asset classes to be more easily traded? 87 00:05:27,510 --> 00:05:31,710 David Ferrall: Yeah, absolutely. And that's what FCX is all about. We've 88 00:05:31,710 --> 00:05:36,000 David Ferrall: launched FCX as a solution to a known problem, and 89 00:05:36,000 --> 00:05:40,680 David Ferrall: that is unlisted shares. We're an unlisted company. We've been 90 00:05:40,710 --> 00:05:43,470 David Ferrall: around for seven odd years. We've been through three or 91 00:05:43,470 --> 00:05:48,480 David Ferrall: four capital raises. There's no, in Australia, centralized platform to 92 00:05:48,480 --> 00:05:52,020 David Ferrall: manage unlisted. And so we've really built it as a 93 00:05:52,020 --> 00:05:55,800 David Ferrall: solution to problem for unlisted shares, but we've also built 94 00:05:55,800 --> 00:06:00,089 David Ferrall: it being asset class agnostic. And by that we mean 95 00:06:00,089 --> 00:06:03,240 David Ferrall: we could put any asset class on there. We already 96 00:06:03,240 --> 00:06:06,089 David Ferrall: have debt instruments on there. We've had a lot of 97 00:06:06,089 --> 00:06:10,710 David Ferrall: inquiry from unlisted funds that may look to also list 98 00:06:10,710 --> 00:06:14,070 David Ferrall: on there, but likewise, you could put anything on there 99 00:06:14,070 --> 00:06:18,359 David Ferrall: as well. Commodities property, really, whatever you wanted to put 100 00:06:18,360 --> 00:06:19,770 David Ferrall: on there from a ledger perspective. 101 00:06:20,370 --> 00:06:24,029 Sean Aylmer: Okay. Now given what we're seeing in public investment markets, 102 00:06:24,029 --> 00:06:27,599 Sean Aylmer: so what equities has done, what bonds have done, when 103 00:06:27,600 --> 00:06:31,020 Sean Aylmer: I talk to people, they're regularly saying alternatives, where you 104 00:06:31,020 --> 00:06:33,960 Sean Aylmer: got to go. Now alternatives is a very generic term 105 00:06:33,960 --> 00:06:36,960 Sean Aylmer: for all sorts of asset classes. But I mean, in 106 00:06:36,960 --> 00:06:38,700 Sean Aylmer: a sense, if people have to get out of that 107 00:06:38,700 --> 00:06:40,830 Sean Aylmer: 60/40 mindset, if people have to get out of the 108 00:06:40,830 --> 00:06:44,550 Sean Aylmer: equities, bonds mindset, this is the sort of technology presumably 109 00:06:44,550 --> 00:06:47,490 Sean Aylmer: that means my super fund, if I'm doing it myself, 110 00:06:47,850 --> 00:06:51,330 Sean Aylmer: can potentially access assets that I wouldn't have been able 111 00:06:51,330 --> 00:06:52,260 Sean Aylmer: to otherwise. 112 00:06:52,860 --> 00:06:57,029 David Ferrall: Yeah, absolutely. And that's what we're hoping is the end 113 00:06:57,029 --> 00:07:00,960 David Ferrall: result here, that you start to see more product and 114 00:07:00,960 --> 00:07:05,730 David Ferrall: better access to asset classes that have traditionally been reserved 115 00:07:06,210 --> 00:07:10,950 David Ferrall: for only big fund managers, or sophisticated or highly sophisticated 116 00:07:10,950 --> 00:07:14,790 David Ferrall: investors. So as soon as you see more products being 117 00:07:14,790 --> 00:07:18,570 David Ferrall: listed on this as a more efficient ecosystem, then that 118 00:07:18,570 --> 00:07:22,170 David Ferrall: opens up to investors to access alternates, as you call them. 119 00:07:22,680 --> 00:07:24,570 Sean Aylmer: I'm going to sound really dumb here, can you actually 120 00:07:24,570 --> 00:07:28,860 Sean Aylmer: access the ASX via a system like yours and bypass 121 00:07:28,920 --> 00:07:30,810 Sean Aylmer: the CHESS system? You can't because you need a HIN. 122 00:07:31,560 --> 00:07:32,640 Sean Aylmer: I think I've answered my question. 123 00:07:32,700 --> 00:07:38,070 David Ferrall: Well, yes, yes. Sort of. Look, first and foremost, if 124 00:07:38,070 --> 00:07:42,210 David Ferrall: you think about what FCX, it's a registry. It's a 125 00:07:42,210 --> 00:07:46,350 David Ferrall: registry, much like the big name registries, like a computer 126 00:07:46,350 --> 00:07:50,550 David Ferrall: share or a link or others. In this case, we've 127 00:07:50,550 --> 00:07:56,070 David Ferrall: built it specifically for unlisted companies, but there's no reason, 128 00:07:56,070 --> 00:08:00,420 David Ferrall: for example, why a listed company potentially couldn't also sit 129 00:08:00,420 --> 00:08:05,160 David Ferrall: on FCX. We haven't connected FCX to CHESS and that 130 00:08:05,670 --> 00:08:09,450 David Ferrall: publicly traded market infrastructure, but there's no reason why we 131 00:08:09,450 --> 00:08:13,800 David Ferrall: couldn't. And it could potentially be an alternate way for 132 00:08:13,800 --> 00:08:18,180 David Ferrall: listed companies, but that's not our priority at this stage. 133 00:08:18,480 --> 00:08:20,730 Sean Aylmer: Yep, yep. I've been focusing on the benefits to me, which 134 00:08:20,730 --> 00:08:24,239 Sean Aylmer: is not unusual on this show, David, but how about 135 00:08:25,260 --> 00:08:27,060 Sean Aylmer: the owners of the assets themselves? If you want to 136 00:08:27,060 --> 00:08:30,570 Sean Aylmer: raise money, and suddenly you may have a whole new 137 00:08:31,050 --> 00:08:33,750 Sean Aylmer: area where you can go and find some cash, that's 138 00:08:33,750 --> 00:08:35,729 Sean Aylmer: not the three (inaudible) that have already bought into you. 139 00:08:36,480 --> 00:08:40,110 David Ferrall: Yeah. Look, again, what we're hoping here is to start 140 00:08:40,110 --> 00:08:43,949 David Ferrall: to build an ecosystem where companies can come and sit 141 00:08:43,950 --> 00:08:47,640 David Ferrall: on this as a far more efficient ecosystem than going 142 00:08:47,640 --> 00:08:50,010 David Ferrall: to a public listing. If you think about it from 143 00:08:50,010 --> 00:08:54,210 David Ferrall: a corporate perspective, to sit on the ASX, it costs, 144 00:08:54,210 --> 00:08:56,699 David Ferrall: we think, somewhere between one and a half million to $ 145 00:08:56,700 --> 00:09:01,650 David Ferrall: 2 million a year in terms of legal fees, compliance, 146 00:09:01,650 --> 00:09:07,470 David Ferrall: regulatory conditions. So it's a big undertaking. And if you 147 00:09:07,470 --> 00:09:09,599 David Ferrall: look at the companies that, say, sit on the ASX, 148 00:09:10,080 --> 00:09:12,840 David Ferrall: half the companies that sit on the ASX are less than $ 149 00:09:12,840 --> 00:09:16,170 David Ferrall: 50 million market cap. So if you are less than $ 150 00:09:16,170 --> 00:09:20,010 David Ferrall: 50 million, let's say you're a $ 20 million market cap 151 00:09:20,250 --> 00:09:22,320 David Ferrall: and you're paying away one and a half or $ 2 152 00:09:22,320 --> 00:09:26,460 David Ferrall: million a year just to sit on the ASX, that's 153 00:09:26,460 --> 00:09:30,089 David Ferrall: a lot of your free cash, or potential free cash, 154 00:09:30,540 --> 00:09:33,390 David Ferrall: and a lot of cost for a small company. So 155 00:09:33,390 --> 00:09:36,900 David Ferrall: really what looking to do here is to build an 156 00:09:36,900 --> 00:09:42,510 David Ferrall: ecosystem which takes a company from very early stage, providing 157 00:09:42,510 --> 00:09:45,959 David Ferrall: an ecosystem for them and a cheaper ecosystem to them, 158 00:09:46,020 --> 00:09:50,760 David Ferrall: to more efficiently raise capital and have liquidity in a 159 00:09:50,760 --> 00:09:55,860 David Ferrall: marketplace or a platform, rather than going to a very high- 160 00:09:55,860 --> 00:10:01,200 David Ferrall: cost, continuous disclosure regime of sitting in an always- on 161 00:10:01,200 --> 00:10:05,219 David Ferrall: trading platform like the ASX. And obviously, once you've built 162 00:10:05,220 --> 00:10:09,660 David Ferrall: that ecosystem and attracted those companies and investors on there, 163 00:10:09,990 --> 00:10:12,720 David Ferrall: then it starts to broaden out. And the actual investors 164 00:10:12,780 --> 00:10:17,220 David Ferrall: sitting on platform then start to see other investment opportunities, 165 00:10:17,220 --> 00:10:21,059 David Ferrall: other companies sitting on platform, and have the ability to 166 00:10:21,210 --> 00:10:24,990 David Ferrall: deploy and to diversify their investments into other companies. 167 00:10:25,530 --> 00:10:28,920 Sean Aylmer: It's early days, but certainly a huge potential there, particularly 168 00:10:28,920 --> 00:10:30,089 Sean Aylmer: in that small cap area. 169 00:10:30,510 --> 00:10:34,109 David Ferrall: Look, yeah, absolutely in the small cap, but increasingly or 170 00:10:34,110 --> 00:10:38,370 David Ferrall: interestingly as well, for example, FinClear today we're about a ... 171 00:10:38,820 --> 00:10:41,760 David Ferrall: Last time we raised capital, we're about a half a billion- 172 00:10:41,760 --> 00:10:46,770 David Ferrall: dollar company in terms of valuation. We happily sit on 173 00:10:46,770 --> 00:10:50,130 David Ferrall: FCX today as a capped table and a means for 174 00:10:50,160 --> 00:10:54,150 David Ferrall: liquidity, and we think we'll happily sit on FCX for 175 00:10:54,150 --> 00:10:58,170 David Ferrall: quite some time. But there's definitely a trend that companies 176 00:10:58,170 --> 00:11:01,860 David Ferrall: are looking to stay private longer for a whole raft 177 00:11:01,860 --> 00:11:05,010 David Ferrall: of reasons. And so you see some very high valuation 178 00:11:05,010 --> 00:11:09,300 David Ferrall: companies in Australia today, probably the best known, for example, 179 00:11:09,300 --> 00:11:14,100 David Ferrall: being Canva, that happily still sit in a private environment. 180 00:11:14,100 --> 00:11:17,010 David Ferrall: And we think that that trend is only going to continue. 181 00:11:17,670 --> 00:11:19,350 Sean Aylmer: Good luck with it, David, and thank you for talking 182 00:11:19,350 --> 00:11:20,160 Sean Aylmer: to Fear and Greed. 183 00:11:20,760 --> 00:11:22,319 David Ferrall: Thank you very much. It's been a pleasure. 184 00:11:22,920 --> 00:11:26,280 Sean Aylmer: That was David Ferrall, founder and CEO of Fin Clear. 185 00:11:26,460 --> 00:11:28,620 Sean Aylmer: This is the Fear and Greed daily interview. Join us 186 00:11:28,620 --> 00:11:30,719 Sean Aylmer: every morning for the full episode of Fear and Greed, 187 00:11:30,720 --> 00:11:34,679 Sean Aylmer: australia's most popular business podcast. I'm Sean Aylmer, enjoy your day.