Regulated Tokenized Corporate Bond using Blockchain
BME
Bolsas Mercados Españoles (BME), a company of the SIX Group, is the operator of all the stock markets and financial systems in Spain. Since 2020, BME has been part of the Swiss group SIX, the third largest operator in Europe with more than 4,000 employees and a presence in 20 countries. BME has offices in Madrid, Barcelona, Bilbao and Valencia.
Context
As the operator of Spain’s stock markets and financial systems, BME faced this challenge directly. In the realm of bond issuance, the traditional process can be cumbersome and expensive, involving numerous intermediaries and complex registration and custody systems.
Traditional bond issuance requires a manual and costly process with multiple intermediaries and registration and custody systems.
Trading traditional bonds involves intermediaries such as investment banks and stockbrokers, who charge fees for their services and limit investor access to bonds.
Traditional bond issuance can have transparency issues as bond information and issuer details may be scattered across different systems and records.
The challenge was to align advanced technology with the dynamics of regulatory compliance, emphasizing the critical importance of harmonizing technological innovation with the prevailing regulatory framework for the successful digital transformation of the financial sector.
Transforming Bond Lifecycle with Asseto: Blockchain-Powered Issuance and Settlement
With Asseto as the blockchain-based solution, BME successfully implemented the complete lifecycle of bonds on the blockchain, including issuance, coupons, principal amortizations, and secure DvP settlement.
Regulatory Compliance
The BME Digital Bond project utilized Distributed Ledger Technology (DLT) and smart contracts to manage the lifecycle of a bond while adhering to regulatory compliance. The project demonstrated the practicality and operational viability of utilizing blockchain technology for the issuance and lifecycle management of a bond in full compliance with regulatory standards, marking the first instance of a digital bond being registered on a regulated Central Securities Depository (CSD), under the supervision of the Comisión Nacional del Mercado de Valores (CNMV).
Market Participants
The issuance and lifecycle management of the Digital Bond encompassed the same spectrum of participants that are typically involved in analogous processes within the conventional sphere, including Central Securities Depositories (CSDs), custodians, issuers, agent banks and investors.
Smart Contracts & Technical Architecture
The platform¡s development includes the creation of a set of smart contracts that implemented diverse functionalities related to bond management, ensuring transparency, traceability, and security of any bond-related activities: a Smart Contract for Bond Sale, a Smart Contract for Secondary Market and a Smart Contract for Payment Events Management, which collectively managed the bond lifecycle.
DvP Settlement
In order to provide seamless and secure trade settlement, Delivery versus payment (DvP) was implemented through Tokenized Electronic Money, a digital representation of traditional fiat currencies and DLT infrastructure, facilitating the settlement of bond transactions.
Cash Tokenizer Entity
The Cash Tokenizer Platform, which is a digital infrastructure designed to create and manage this Tokenized Electronic Money, is governed by a Cash Tokenizer Entity (role played by BBVA, one of the biggest spanish banks), an authorized and regulated entity responsible for issuing electronic money and ensuring compliance with relevant legal and regulatory requirements.
Efficiency & Risk Reduction
The use of Tokenized Electronic Money in the DvP process facilitated a more efficient and streamlined settlement process, reducing counterparty risk and assuring the secure and timely transfer of assets and funds.
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