THE EMERGING BLOCKCHAIN BOND LANDSCAPE.
SIX Securities Services has developed a blockchain powered service covering the full bond trading life cycle from issuance to settlement. The prototype enables the issuing of bonds as smart contracts that specify at what dates coupon payments are made, for what amounts and when repayments occur.
The service also includes the connection of the smart contract to the chain where buyers can allocate money by paying in digitalised currency to the address of the bond.
Last September SIX Securities announced its partnership with Digital Asset Holdings to develop distributed ledger technology based solutions for the Swiss financial market.
However, the group also published research which showed that regulatory uncertainty and a lack of in-house expertise are proving major roadblocks to near-term adoption. It forecast a six-year timeframe before industry-wide applications of the technology would see the light of day.
Thomas Zeeb, CEO SIX Securities Services: “Though still some way off for market-wide adoption, we are firmly of the belief that the potential shown here is promising – for us – and for the industry as a whole. I am convinced that what we have achieved with this approach could revolutionise several processes used by the Swiss financial services industry while sustainably securing our role in the provision of services throughout the Swiss value chain.”
The bond markets are seen as fertile ground for the live production of digital ledgers, promising significant cost reduction through the removal of operational and reconciliation processes and the reduction of settlement/counterparty risk and associated capital requirements.
Interbank co-operative Swift has debuted a similar proof-of-concept for bond issuance across multiple geographies, connecting all participants to a trade on a single immutable network. Meanwhile, SBI Securities and IBM and the R3 consortium have also been working to develop similar applications.
In addition, UK based BlockEx (Digital Asset Exchange Platform) is developing a project for the issuance of digital assets including bonds, equities and syndicated loans. The full lifecycle platform aims to settle trades within 30 seconds and leaves a secondary market that generates an indelible history of buying and selling activity using distributed ledger technology.
“Our concept is to make it easy for institutions to issue an asset,” said Adam Leonard, CEO of BlockEx. “Our aim is to template as much of the process as possible. Whether it’s a US$10m or a US$1bn issue, a company can use the asset creation tool, pick documentation and get the money in just a single day.”
The firm is in the process of signing a partner law firm to automate the documentation process. Around a dozen potential issuers are queuing up, according to the firm. The first wave comprises small and medium-sized enterprises eyeing US$10m-$50m issue sizes, which are largely shut out of the capital markets due to syndication costs that average US$200,000-$400,000 according to BlockEx estimates.
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