As ‘proxy season’ approaches, public companies around the world are preparing to send out countless measures to stock holders who, by casting votes, will determine the future direction for each company.
Using an array of proxy voting technologies, stockholders around the world will be asked to cast billions of votes for measures impacting board membership, executive salaries and more.
However, this could be one of the last seasons ever during which that process is done without the assistance of blockchain technology – that’s if one of the largest proxy-voting platforms in the world has anything to say about it.
With a proxy voting infrastructure that underpins the vast majority of voting based on share ownership around the world, New York-based Broadridge has revealed to CoinDesk it is now building two separate solutions that could move those transactions to a blockchain.
In conversation with CoinDesk, the company’s global head of corporate strategy and US fixed income, Vijay Mayadas, detailed how the company that last year generated $2.9bn in revenue is working to slowly move that work to a blockchain.
“We do global proxy across the world,” Mayadas told CoinDesk. “So we are in somewhat of a unique position to understand the requirements and build a blockchain solution to meet those requirements.”
Last quarter alone, Broadridge generated $710m, about a 50% increase resulting largely from an acquisition. Similarly, recurring fee revenues hit $334m last quarter, also helped in part by multiple proxy-related acquisitions.
Without those acquisitions, though, revenue would likely have looked a bit different. The revenue from a single acquisition accounted for more than the total of company’s overall growth, while multiple other acquisitions contributed to the recurring fee growth.
Without the acquisitions, event-driven revenues actually declined by $27m, believed to be a result of lower mutual fund proxy volumes, while organic revenue growth was up 4% last quarter.
Multiple projects
To increase margins, the global head of strategy is helping build blockchain voting solutions in two main categories, with multiple other blockchain projects also revealed exclusively to CoinDesk.
The largest of the projects is a global blockchain solution for proxy voting, where stockholders are allowed to cast a wide range of votes.
The global blockchain pilot, expected to be unveiled soon, will consist of real votes cast between a “very large” bank and two large custodians, according to Mayadas. To integrate the product with stock holders’ ownership stakes, the blockchain solution will tap into pertinent global custodians who keep a record of ownership.
As more and more of Broadridge’s two billion messages to investors each year are moved to the blockchain, additional custodians will need to be added, but the global structure will remain largely the same.
That’s not the case with Broadridge’s other proxy solution, though. Currently in development for the US, that system is completely different from a design perspective, and is planned for integration with 900 broker-dealers instead of the firm’s global custodians.
Mayadas said:
“The process is very different, the regulations are very different, so there are a lot of nuances around the proxy process.”
Asia-Pacific focus
Over the past five months, since Broadridge spent $90m to acquire blockchain-related assets from Georgia-based Inveshare, the company’s related work has expanded in more than just the variety of proxy solutions.
From a team of 30 people previously working on blockchain development, 10 more have been added, and the lessons they’ve learned along the way are now being applied to applications beyond just proxy voting.
Specifically, Mayadas said Broadridge has recently begun to focus on the clearing and settlement space surrounding fixed-income investment vehicles and more.
“We are probably 50% focused on proxy, 50% focused on a bunch of other use cases,” he said.
With 18 of the 23 primary dealers in the US listed as clients, Mayadas estimates his firm now owns a 60% market share in the space.
To help gather critical mass among those clients and more, the company earlier this year embarked on a roadshow in the Asia-Pacific region with members of the Singapore Stock Exchange, the Singapore Monetary Authority and the Japan Exchange Group.
Broadridge has identified that region as central to its growth strategy due to the integrated nature of the local infrastructure – a factor the firm thinks could help clients more rapidly adopt the technology.
Because those clients are already united under Broadridge’s own set of processes and standards, Mayadas argued they will have an advantage over others pursuing the consortium model.
He said:
“One of the challenges we’ve seen with folks like R3 and so on, is trying to get everyone to agree on a standard when you’re building something from scratch.”
Application layer
Another change Broadridge has experienced since last year is of a more philosophical nature.
Gone are the days of imagining a wholesale replacement of financial infrastructure with blockchain systems, as more and more of Broadridge’s clients have struggled to see the business case for doing so.
Still suffering from the fallout surrounding the financial collapse of 2008, Mayadas says his clients are looking to quickly save money on even the tightest margins, and they believe blockchain could help.
But as major players like Nasdaq and South Africa’s Central Securities Depository, Strate, have also begun working on proxy blockchain solutions and more, the race to monetize the technology has accelerated.
Now, Broadridge’s clients have targeted a return on their investment in as little as two to three years, not the 15 years Mayadas predicts it will take for the majority of the world’s “core” financial infrastructure to be built on blockchain.
To accelerate the path to profitability, Broadridge has tweaked its strategy from ground-up disruption to the construction of a “thin layer” of blockchain applications, as Mayadas describes them.
Instead of seeking the larger scale benefits of the wholesale movement of transactions to a blockchain, these applications are designed to sit atop the existing infrastructure and squeeze out increased efficiencies in the short term.
While running in parallel to the existing system, these hybrid blockchain applications will, the firm theorizes, result in dividends as kinks in the larger blockchain system are worked out and resiliency is tested.
Planned integration
Perhaps the most dramatic example of this new change, is an early stage prototype being constructed by Broadridge to accelerate the settlement time of corporate bonds, although without utilizing blockchain in the process.
Instead, such a solution would be built with eventual blockchain integration in mind.
While technical details of the solutions are not yet being revealed, one of Broadridge’s largest clients is founding member of the Enterprise Ethereum Alliance, JP Morgan. Further, Broadridge is an investor in Digital Asset Holdings and a member of Linux-led Hyperledger group.
For now, Mayadas believes that, in the short term, the increased efficiency his clients need can be achieved using more traditional database technology than a blockchain.
He concluded:
“We actually think we can do that without blockchain. But we think over time blockchain can help us even more.”
Editors note: This article was updated with additional information to show the total second quarter revenue increased to $710m and the recurring fees revenue was $334m.
Broadridge image via Michael del Castillo for CoinDesk