European Investment Bank launches first-ever sterling denominated digital bond
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(Kitco News) - The European Investment Bank (EIB) has announced the launch of its first-ever pound sterling-denominated digital bond using blockchain technology.
According to the announcement, the EIB has priced its first £50 million digital bond using a combination of private and public blockchains operated and accessed via HSBC Orion – the bank’s tokenization platform.
The recently adopted Luxembourg legal framework made the new bond possible as it allowed “for the issuance, transfer and custody of dematerialized securities on distributed ledger technology (DLT) infrastructure,” the release said.
The reason for the combined use of public and private blockchains revolves around their different applications. The encrypted private blockchain “serves as the record of legal ownership of the digital bond and provides the operational framework to manage the floating rate instrument and its lifecycle events.” The public blockchain is used for information purposes and provides increased transparency to investors and the market, the EIB wrote.
HSBC Orion will be tasked with holding the dematerialized digital bonds in digital securities accounts while BNP Paribas, HSBC, and RBC Capital Markets will act as custodians for existing clients who invest in this digital bond.
HSBC will serve as the central account keeper and record transactions in the digital bond on the HSBC Orion platform while the architecture of the system is distributed between BNP Paribas, HSBC and RBC Capital Markets, the announcement said.
According to the bank, the benefits of releasing digital bonds are that they will reduce costs, improve efficiency and “allow for real-time data synchronization across participants.”
“The time has come for further innovation in the financial sector, and we are pleased to issue the first digital bond in pound sterling on a private and public blockchain with the support of our counterparts,” said EIB Vice-President Ricardo Mourinho Felix. “This new financial tool will provide additional capital flow that the EIB will invest in projects with global impact.”
The launch of the first pound sterling-denominated digital bond is being used to test the feasibility of using a combination of public and private ledgers to facilitate secure and transparent tokenization.
According to Asif Sherani, HSBC Head of DCM Syndicate EMEA, this is the first public issuance on the HSBC Orion tokenization platform, and it holds the promise of “offering faster processing and improved operational performance across fixed-income issuance.”
As the world moves towards the digitalization of capital markets, this release marks an important step in that process as financial institutions around the world look to adopt blockchain technology to “significantly enhance global debt capital market operations,” said Arnaud Delestienne, LuxSE Director of International Capital Markets.
|European Investment Bank utilizes a private blockchain to settle the "first ever" €100 million bond|
The trend of tokenizing various forms of assets has been gaining momentum as of late as the crypto market begins to recover from its disastrous performance in 2022 and companies and institutions around the world explore the different applications of blockchain technology.
BlackRock CEO Larry Fink previously stated that tokenization is the future of global markets and will power the next evolution in investing. “I believe the next generation for markets, the next generation for securities, will be tokenization of securities,” Fink said. “Think about instantaneous settlement [of] bonds and stocks, no middlemen, we’re going to bring down fees even more dramatically.”
In January, authorities in Hong Kong announced that they had launched a pilot program to explore the issuance of tokenized green bonds for institutional investors, among other blockchain-related initiatives. And last week in Switzerland, the independent private bank Cité Gestion became the first private bank to tokenize its own shares under Swiss law through a partnership with Taurus technology.