First digital bond issued on a SIX regulated market highlights a need for standards


Important events do not seem significant when they occur. Hardly anyone noticed when bitcoin paper was uploaded to the cypherpunks mailing list in 2009. Now it has spawned a few new industries and rocked many established industries. Likewise, the release of the first digital bond on a regulated market announced by SIX yesterday did not cause significant waves. Of course, it is unfair to compare the effects of the publication of a piece of local code by a lone wolf to the actions of an institution like the Swiss Stock Exchange. However, the two are linked by the data structure of the blockchain.

The bond market is relatively stable, but there is no shortage of drama, such as Argentina’s sovereign default and its standoffs or the virtual destruction of the global financial system by bonds backed by US subprime mortgages and now a bond. digital. Bonds are considered a safer value because the age of bond debt makes them less risky. SIFMA’s 2021 Capital Markets Information Digest shows that outstanding global bond markets rose 16.5 percent to $ 123.5 trillion in 2020, while global long-term bond issuance rose 19.9% ​​to $ 27.3 trillion. Compare that to the global market capitalization which rose 18.2% year-on-year to $ 105.8 trillion in 2020, mostly fueled by rising stock prices. The annual issuance of bonds eclipses the issuance of shares. Stocks are a perpetual instrument, while bonds have a duration and often pay a recurring or embedded coupon.

A press release from the Swiss Stock Exchange dated November 18 indicates that SIX has placed the first senior unsecured digital bond in CHF with a total volume of CHF 150 million and maturing in 2026. The bond is innovative because it is made up of two interchangeable parts linked together. The digital part (Part A) of the bond for CHF 100 million and the traditional part (Part B) of the bond for CHF 50 million. Each will be traded and held in different structural sub-bodies of the exchange. The coupon amounts to an anemic 0.125% per annum. This is normal for the price of bonds, a safe instrument, it has been heavily oversubscribed. Indeed, the returns are negative if inflation is taken into account; in that it’s better than cash. The net proceeds of the loan will be used for the general purposes of financing SIX.

The DLT used was Corda de R3. Corda is not a blockchain according to many, including its CEO. Under the covers, Corda is backed by a micro-ledger, a mini blockchain. This bond issue is a test for SIX Digital Exchange, which is a manifestation of SIX’s mandate to operate infrastructure services.

In digital bonds, for trading, for custody, for operations and post-trade processes, standards are important. Bonds cannot be considered fully digital until common operations can be automated and digitized. The calculation of coupon and value payments underpins risk analysis and secondary markets, which operate on price, depend on the attributes of bonds. A lack of standards disrupts the world of bonds. Costs mount for institutions creating their own infrastructure to define, assess and track obligations. This is natural for instruments that have evolved over hundreds of years, if not thousands. Standards development organizations such as the InterWork Alliance (IWA) are important in this context.

Now known as IWA, a GBBC project; IWA started life as a Token Taxonomy Initiative (TTI) within the Enterprise Ethereum Association (EEA). The DNA of the EEA is Ethereum and its rich suite of de facto token standards. These de facto standards sparked a revolution in cryptocurrencies and created DAOs, DeFi, and an explosion of NFTs. This revolution now extends to other public and private blockchains. TTI has created the Token Taxonomy Framework (TTF) which is open source on github. TTF defines a set of basic building blocks of a symbolic language as well as the crystallization of that language into a specific link type. This symbolic language is spoken in a neutral manner on the platform. In other words, the token can be built on Solana, on Hyperledger Fabric, on Polychain as long as the token, its interface and attributes can be implemented. The token behaves in a strictly deterministic manner. It is also possible to reason about the value of the token, as well as to deal with emerging events with circuit breakers and other integrated guardrails.

The basic definition of any TTF digital token is expressed using a short token formula. From this symbolic formula, a series of artifacts, from function model code to business functionality, is generated. This ensures that everyone from technologists to business users to compliance officers are working from the same functional specification. These are standards for the modern era, which contain tools to generate everything, including a visual representation of a token. A series of specially designed artifacts, all generated from the token formula. A digital token is the basis of an ecosystem which, for any instrument, also consists of contracts between counterparties and analyzes based on the interaction between the token and the contracts, thus building what is in effect a multi-party system that feeds the life cycle of an instrument. This is the key to digitizing instruments such as bonds that have existed since Mesopotamian times.

This awareness led to the creation of the Inter Work Alliance based on the TTF as a foundation. So far, the story has a common thread that arouses skepticism among people who have been seasoned working in capital markets grappling with shattered and fragmented financial market infrastructure. This is a real challenge for the adoption by traditional finance types of businesses. A certain dose of skepticism, a healthy blockchain suspicion that many associate with Bitcoin, and a sense of déjà vu is blocking adoption. The merger of IWA with the Global Blockchain Business Council addresses this problem head-on. GBBC, founded by the tireless Sandra Ro, is one of the most influential associations in the blockchain industry with more than 350 institutional members and 70 jurisdictions. The GBBC and the World Economic Forum had already started a survey on Blockchain standards called GSMI. The next natural step for GBBC is to partner with an organization that has a pedigree in developing standards. The merger between IWA and GBBC was natural; announced in September and recently completed.

In the meantime, the IWA has not been idle. The Sustainability Working Group has been the most active and has created symbolic standards to monitor the different forms of the voluntary emissions market. This market-based approach covers both emission allowances and carbon offsets and addresses the topical subject highlighted by COP26. These kinds of initiatives can help humanity escape the “blah-blah-blah” mentality that constrains us. A market-based approach cannot work if emission allowances are huge and carbon offsets are cheap. Of course, the price of these offsets must be prohibitive and traceable for the world to escape the peculiarity of an increase of more than 1.5 degrees in average temperatures.

The standard for digital bonds, when a simple formula turns into an implementation that every part of a multi-party system can agree upon and automatically generates a variety of tools to create and monitor bond behavior in a way. platform neutral, with price extensions and risk management of digital bonds, creates cost savings. Reducing costs will democratize the investment landscape and make participation more decentralized. In addition, looking at the link through the lens of standards opens up possibilities for new behaviors and new products. So revolution and evolution are triggered by standards. A new task force has been revived within IWA to examine debt capital markets. This group is made up of both traditional actors and new actors with all the tools of the TTF. GBBC is poised to amplify this message and take it to many businesses and jurisdictions.


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