Overstock.com’s ‘cryptosecurity’ arm, Medici, has acquired SpeedRoute, a Wall Street trade routing technology firm.
Overstock, an online e-tailer, was one of the first and best known companies to accept bitcoin for payment. Since late last year, it has been increasingly focusing on Medici, or tØ platform, that would leverage Bitcoin’s Blockchain technology for decentralized securities trading. Overstock CEO Patrick Byrne has been a vocal critic of various practices on Wall Street, such as naked short selling, and spearheaded the project in an effort to eventually revolutionize the trading and settlement processes.
Byrne told the New York Business Journalthat the acquisition of SpeedRoute would mark the first time blockchain technology is plugged directly into Wall Street. “Basically, it’s the wormhole. It’s the connection between the two universes. All the stuff we’ve built can now be accessed directly by people with a Bloomberg terminal, people with an eTrade account,” said Byrne.
SpeedRoute’s stated offerings include financial technology services to increase broker-dealer profits and productivity. Launched in 2010, it seeks to provide a streamlined bridge between a majority of front-end and order management systems, and the US equity exchanges, dark pools and Liquidity providers. According to an Overstock statement, SpeedRoute moves approximately 2.5% of US equity order flow.
SpeedRoute looks to help firms and traders "struggling with market fragmentation and increasingly complex order types." According to its website, clients can access "over forty sources of liquidity while minimizing the costs associated with order execution."
The goal of streamlining the trading process thus well complements Medici's objective to simplify their settlement.
Deal Specs
The deal saw Medici acquire the SpeedRoute for $30.3 million via Cirrus Services, a tØ subsidiary set up specifically to make the purchase. The amount consists of $11 million in cash and 900,000 shares of Overstock common stock worth roughly $19.3 million. Some assets remain subject to regulatory notification requirements before their transfer is completed.
TØ already owns a 25% stake in SpeedRoute. A March SEC filing by Overstock indicated that the company acquired a 25% stake in a broker-dealer, unnamed at the time. Overstock increased its holdings in tØ to 81% in the latest deal.
The deal was disclosed amidst some of the most extreme trading experienced on Wall Street and global equity markets in years, a phenomenon Byrne blames on the manipulation of broken technologies.
“When you have things like the Flash Crash and you have these enormous spikes in volatility, one starts wondering what’s actually trading. Is this a market as we understand it? Or is this a bunch of technologies speaking to each other that people have figured out how to game? All of that gets stripped away in a public ledger. All of that gets stripped away with a crypto-ledger,” he said.
Byrne further alleges that millions are made by insiders and middlemen exploiting loopholes in the fungibility of securities, allowing them to "rent out" the same assets to multiple parties at the same time. TØ’s motto is “The Trade is the Settlement,” as opposed to the current scenario, which Byrne frames as contracts for stocks being traded for future settlement.
Recently, Overstock began issuing its first blockchain-based securities, which include the sale of a $5 million ‘cryptobond’ to an FNY Capital affiliate. In a launch event for the TØ platform, held at NASDAQ’s headquarters in New York, Byrne said that Chinese banking giant ICBC and several other major foreign banks are signing up to have their long positions “tokenized”.
