Michael Howard Mon, Jun 28, '21 5 min read

Building a stock exchange for digital-first SMEs

We sit down with Harry O'Connor, the CTO and co-founder of Catalist, the stock exchange for SMEs in New Zealand and ask him about the challenges and solutions to building a new offering in a traditionally risk-averse industry. For the full interview listen to Episode 8 of our podcast Beta & Beyond.    

What is Catalist and how did it get started?

Harry: Catalist is a stock exchange for small and medium sized businesses. We categorise that as any business between...five and 60 million market cap, and (we) can support them up to 100 million market cap before we transition them on to a more traditional public Stock Exchange. So whether that's an ASX or an NZX, and we have both public market and private markets, both using the sort of the same option mechanisms.

Now, the story of Catalist started with my co-founder Colin Magee, he used to be Head of Conduct at the Financial Markets Authority, which is the regulator for financial markets in New Zealand. And during his time there, he's had a lot of companies coming up to him wanting to raise capital from the general public. There was no real way for these types of companies to go and do it other than listing on the NZX. And for lots of these companies the compliance burden is just too high, and it's too costly. And so he  ...left and went to sort of figure out how would we design (for) this type of market, and I was introduced to Colin mid 2019. And you needed a technical co-founder to sort of help build out the product. And yeah, so I've been been foot-to-the-floor ever since then, helping build out the team, and yeah designing a completely end-to-end SAS product that is also a publicly listed Stock Exchange.

What challenges do CTOs face when building out their engineering teams?

Harry: So I mean, we're still a pretty small company. And so we've only got a team of three. So it's myself and two other developers on the product side. But finding skilled talent in New Zealand, who genuinely care about what they are building is quite a challenge. You know, there's lots of people out there who are wanting to sort of just get involved in a tech company and, are interested in the tech, but not necessarily as much about the product. And we think that's a very important thing. In a business this attention to detail is hugely important. And so you really need to care about what, what you're building.

And another thing is making sure that when you do onboard people, that you maintain consistent coding styles and patterns. Because everyone's got different backgrounds and different ways of approaching problems and so on. So we try to keep pretty repeatable patterns and component structures.

What are the types of risks that businesses consider when weighing up their technology investment?

Harry: So are we able to sort of find skilled developers with experience in our particular stack, which is always a tricky thing. To give you a little bit of background, the version one of our platform, a lot of the back end of the auction, and securities logic was running on Ethereum smart contracts. And we ended up migrating this logic into API databases, after you know, basically struggling to find people who were able to go with this tech, and also you know, there were some other sort of performance related issues to that. And so that was something that was a little bit of a challenge to overcome. And we've sort of just deemed it too risky from the business point of view to continue down that route.

And another one is ‘Will developers enjoy working with our stack and using our technologies?’ And you know, building on Ethereum at the moment is like being a web developer in the mid 90s. The amount of documentation is pretty, it's pretty thin. It's a bit of the Wild West. And yet, there's not that many developer tools that are out there at the moment. And so you're just using modern frameworks and tools that make life a bit easier for developers and streamlining deployment processes. So we use GitHub actions, and which goes through and sort of builds the docker image and sends off to cloud formation and so on. And so just sort of streamlining and making the developer experience a little bit easier...

So going back to the risks answer, there's always going to be a trade-off between, what's going to improve the user experience with what's going to improve the admin experience. And so our product requires quite a lot of business oversight, and lots of bespoke admin tools that we need to build on and also have built. And this just sort of helps automate different business processes.

But also, as a startup, the customer facing product is still our main priority. And one of the main questions is, could this make the customer's life easier and reduce friction, or their experience of Catalist basically. And you know, would this system says, feature work if we hit massive scale overnight? And that’s sort of always in the back of your mind, but our expectations aren't hypergrowth. And New Zealand is a relatively small market. And also, when you're considering scale, it's not just on the tech side, but you know, would the business slash admin processes also be able to keep up?

And I guess the final point to that is, are the regulators likely to be comfortable with this decision, right? So any changes to the way that like core functionality, or the trading settlement has to be approved by our board and FMA. But other features such as like displaying extra information, or even the way that you phrase language on the website, and images and, and things like that, you need to think through - How would the regulator view or interpret this? And Colin is and a very qualified position to help make that judgment. And so he gives quite a lot of advice around that stuff, which is really, really helpful.

In terms of the Ethereum contracts that you're using, what was the FMA’s position on these here? Have they have they worked something yet? What was the guidance that you had from them?

Harry: They don't really mind as long as the text does what it's what you say it does. They don't really mind how it's implemented. And so yeah, it was it wasn't even a discussion point. I don't know how they feel about the whole sort of tokenization space in general. But for us, it was basically just like a heavily modified ERC 20 style contracts. That basically each token represented one share, and the companies, and so on. And there's a whole bunch of extra logic around that, and the way that you store the ownership and so on. And I do still believe that that's where the world is heading. It's just, obviously, the tech is not quite at the stage where it's fully scalable yet. But the more time you spend in the space, the more sort of impressed you become with what, what's on the horizon, and all the different institutions and parties that are involved with developing that whole ecosystem.

And it's not to say that we wouldn't revisit something like that further down the line, but it was far too much of a business risk at this stage. And you know, we can, let's do legal innovation first, and then we can start to focus on more sort of technical innovation later down the line if we need to, for sure.

To listen to the full interview with Harry O'Connor, including trends he sees, CX vs regulatory constraints and the role of tech in AML, listen to Episode 8 of our podcast Beta & Beyond.


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