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E-voting has emerged as an area with many applications, including shareholder voting, according to a Nasdaq report by Richard DeMarinis, principal software engineer at Nasdaq’s enterprise architecture and Heidi Uustalu, head of Nasdaq Tallinn issuer services, and Frederik Voss, head of Nasdaq blockchain strategy.
Nasdaq announced interest in 2016 in a new e-voting platform using blockchain technology on its Tallinn exchange in Estonia. The project leveraged digital ID solutions used by the government to provide ID cards to foreigners through the country’s e-Residency program.
The Nasdaq’s Tallinn Stock Exchange is Estonia’s only regulated securities market, according to Nasdaq. The e-Residency platform is an electronic identity system that Estonian residents and those with business interests in Estonia use to access government services.
The e-Residency platform can improve the authentication of shareholders for the e-voting service while blockchain technology will allow votes to be securely and quickly recorded. The technology streamlines the proxy voting process which has historically been fragmented and labor intensive.
As cross-border investing increases, so does pressure for more investor engagement, including flexible solutions to facilitate remote voting and shareholder participation. Intermediate communication among company representatives and investors is also impacted. There is a greater demand for easier access to enable cross-border shareholder activity.
Investors prefer to vote in person at annual general meetings. This presents two opportunities for a new approach: 1) leveraging blockchain’s secure technology and transparency, and 2) partnering with blockchain providers to test the technology as a way to provide remote participation at annual meetings.
Estonia Offers The Right Environment
Nasdaq opted to base its project in Estonia for the following reasons:
• Nasdaq Tallinn and its Estonia central securities depository (CSD) have more than 15 years’ experience in general meetings.
• Nasdaq has a history of information sharing with different stakeholders, such as custodians and issuers.
• 1-tier CSD – Nasdaq has the CSD in Estonia to provide access to securities ownership data.
• Supportive economy – Estonia’s openness to technology makes it a natural fit for such a solution.
• Secure remote identification – All who participate in the annual general meeting need to be identified to optimize the results’ integrity and reduce fraud risk. Estonia has secure digital IDs, allowing for participation in the KYC requirement.
The Tallinn branch of SEB Pank shared its knowledge about voting processes on behalf of clients and distributed voting rights to the owner. This allowed Nasdaq to view the entire custodian workflow; how they interact with custody clients and the functionalities needed for those wishing to vote on behalf of custody clients.
Nasdaq has a functional proof of concept (PoC) with four web-based user interfaces in Estonia. The PoC can ID users based on Estonian digital ID via the e-Residency card or Estonian ID card.
Users can now:
• View information on meetings and vote during the meeting.
• Transfer voting rights to a proxy.
• See how the proxy voted and, if needed, recall the proxy.
• Review prior transactions and meetings based on the system’s indelible record.
Custodians distribute rights to beneficial owners quickly or vote on behalf of clients via file upload. Voting, voting right token transfers and ownership information are all recorded on the blockchain ledger.
Nasdaq recently tested the solution with LHV Group, an Estonian financial group with blockchain experience with Cuber, a wallet app, and other stakeholders.
Reactions From Participants
Reactions from LVH are:
• Erki Kilu, the CEO, said testing was simple and user-friendly. Options required minimal clicks.
• Madis Toomsalu, the CEO, said the initiative has potential. Testing was easy. The future solution could allow them to consider using the product if it enables mobile ID authentication and security.
Feedback from investors included: the GUI was intuitive and clean; everything was logical; it was a fast and easy way to vote.
Most R&D blockchain projects center around settlement transactions. In such cases, assets are digitized on a blockchain and the transaction transfers assets among participants.
The Estonia e-voting project leverages the blockchain’s transaction ledger differently. It uses the blockchain in a traditional manner to record securities ownership and voting token assets for every shareholder. The model shows how a blockchain can work for something besides transaction settlement.
Chain Voting Technology
The smart contract technology form Chain deployed much of the voting technology in the e-voting. The scripts were implemented on the blockchain node itself and performed well. There was no smart contract support in the blockchain API at the time of coding, so custom script deployments and API modifications were implemented successfully.
Estonian citizens receive national ID cards with RSA tokens for two-factor ID authentication when combined with a PIN. Non-citizens can obtain an e-Residency card with the same ID key types as well.
Pilot test feedback indicated support for mobile devices and custom mobile e-voting will enhance the user experience.
Nasdaq will continue to seek opportunities to use blockchain technology to improve efficiencies and performance, paying attention to risk mitigation.
The company will examine how the PoC can apply to internal and client-facing solutions. The end users could be NGOs, investment funds, listed and non-listed companies, trade industry associations, and custodians and investors globally.
E-voting technology might not be the next killer app, but it is nonetheless a necessary solution with potential applications worldwide. There is great potential for improved integrity and efficiency in the shareholder voting process and the annual shareholder meeting.
Image from Shutterstock.