The World Bank’s International Bank for Reconstruction and Development has enabled the recording of secondary market bond trading using blockchain technology in partnership with the Commonwealth Bank of Australia (CommBank).
Both companies announced their partnership on May 15, by confirming that they had successfully enabled secondary market trading recorded on blockchain for bond-i “making this the first bond whose issuance and trading are recorded using distributed ledger technologies.” Bond-i is a blockchain operated new debt instrument and it is “the world’s first bond to be created, allocated, transferred and managed through its life cycle using blockchain technology.” It was launched in August 2018 by the World Bank and CommBank in an attempt to “harness the potential of disruptive technologies.”
Importance of blockchain in capital markets
In the press release, World Bank Vice President and Treasurer Jingdong Hua said: “Enabling secondary trading recorded on the blockchain is a tremendous step forward towards enabling capital markets to leverage distributed ledger technologies for faster, more efficient, and more secure transactions. It speaks to the innovation and commitment of all our partners, including investors, that we were able to achieve this together.”
Sophie Gilder, Head of Experimentation & Commercialisation, CBA Innovation Labs also commented on the growing interest in, and advantages of, blockchain technology: “Since issuing bond-i in August last year, the positive feedback and interest from the technology and financial sector community globally has been extraordinary. There is a growing recognition that blockchain technology can deliver a superior digital market for raising capital and then managing and trading securities, so we are working with our strategic partners to realise that vision.”
The completion of a secondary transaction with trading on the blockchain has demonstrated the potential of blockchain to enhance securities trading by verifying, recording and instantly settling on a distributed ledger.
The functionality of bond-i was developed by CBA’s Blockchain Centre of Excellence, with the help of World Bank and market maker TD Securities. As CIO Australia reported, “The bonds are issued and tracked using an associated platform which features an automated bond auction, bookbuild and allocation; electronic bid capture; an auditable and immutable transaction record; and real time updates and enhanced visibility according to participant’s permissions.”
CBA has participated in a blockchain experiment tracking almonds with five major supply chain players and developed a blockchain-based platform with Ernst & Young (EY) for sharing high-value assets between businesses. Santander, Societe Generale and Al Hilal Bank have also began testing blockchain applications for issuing bonds.
Sources: World Bank, Comm Bank, CIO Australia, Coindesk.