Sumitomo Mitsui Trust Bank, one of Japan’s largest banks, has completed its first asset-backed security token issuance pilot.
The bank announced Monday it has converted Japan’s first certificates of ownership backed by securities into security tokens, and is conducting a trial on the digital asset issuance platform Securitize Japan, a unit of Securitize Inc., according to CoinDesk Japan.
The method of raising funds through the issuance of security tokens is called a security token offering (STO). Investors are issued a digital token that represents a physical investment to be stored on a blockchain.
Security tokens became famous in 2018, following the initial coin offering (ICO) boom. Unlike ICOs, STOs were meant to represent a security regulated and traded in accordance with securities regulation. Despite the hype, STOs failed to take off for the most part, particularly in parts of Asia. In fact, in 2018, Beijing’s financial authority warned that STOs were illegal.
The security tokens issued in Japan’s effort have a short-term rating of “a-1” given by the Japan’s leading credit rating service, Rating and Investment Information, and will be launched within the month, according to the announcement. The security tokens are also compliant with Japan’s Financial Instruments and Exchange Act (FIEA), according to a statement from Securitize Japan.
For the pilot, the bank created beneficiary certificates representing the asset-backed securities and tokenized them on the Securitize platform, the statement said.
Another influential Japanese financial institution, SBI Holdings, announced three days ago it had also completed registration requirements to handle STOs. Additionally, Nomura Holdings, Mizuho Financial, Mitsubishi UFJ Financial and others have been researching and developing digital securities backed by assets such as bonds, stocks and real estate, according to CoinDesk Japan.
Sumitomo Mitsui Trust will continue to research the issuance and management of security tokens for the STO market, according to the announcement. The bank will also be looking into security tokens as a way to connect investors with long-term social impact objectives like the United Nations Sustainable Development Goals (SDG) and Environment, Society and Corporate Governance (ESG).