The Delaware Board of Trade (DBOT), based at Hercules Plaza in Wilmington, operates as a fully automated, auto-execution online trading platform. Founded in part on a $3 million loan from the New Castle County government, the firm is bringing new technologies, like blockchain and crowdfunding, to an existing market.
“We’re specifically focused on equities in the over-the-counter (OTC) market,” says Shawn Sloves, a DBOT board member. His company, Fundamental Interactions, provided the blockchain technology that DBOT runs on; blockchain is the online ledger system that underpins cryptocurrencies like Bitcoin. The OTC market includes low-tier equities (traditionally known as “penny stocks”), but is also home to international stocks — think BMW, Volkswagen and Bayer Aspirin — that don’t want to meet reporting requirements necessary on the larger exchanges.
DBOT is aimed at those higher-value OTC stocks. And, as an alternative trading system regulated by the Financial Industry Regulatory Authority, the firm is positioned to connect investors to startups looking for a less expensive way to raise money. DBOT went live May 2017, and is currently doing an average daily volume of 1 to 4 million shares; it is eligible to trade about 1,000 different stocks. Another feature of alternative trading systems, according to the U.S. Securities and Exchange Commission, is that they don’t regulate their members or surveil their own markets.
“DBOT is trying to bring a higher caliber of securities to the OTC space, and everything is blockchain-ready, so the entire system supports the blockchain out of the box,” Sloves says. “And it has a built-in funding portal — it is really crowdfunding, where you can do mini-IPOs via DBOT.”
Instead of spending all its money on lawyers and filings and registration fees, Sloves explains, a small startup can go public through an online offering with DBOT. Filing with the firm and being listed on its system costs about $15,000 a year, as opposed to the roughly $500,000 it takes to be traded on the Nasdaq.
Looking ahead a few years, DBOT sees itself as well-positioned to trade in cryptocurrencies like Bitcoin. “Since none of the crypto securities are ever going to qualify to be in an exchange,” Sloves explains, “it’s going to require them to come to the OTC market, and DBOT is going to be able to support that.”