The investment and corporate banking arm of Sberbank and telecom giant MTS have laid claim to conducting Russia’s first commercial bond transaction using blockchain technology.
In an announcement, MTS revealed it had placed commercial bonds worth RUB 750 million (approx. $12 million) on a proprietary blockchain platform provided by the country’s National Settlement Depository powered by smart contracts technology.
Based on the Hyperledger Fabric, a production-ready blockchain software developed by the open-source Linux Foundation-led Hyperledger consortium, the blockchain platform enabled the ‘complete securities lifecycle’ of the rouble-denominated commercial bond on a blockchain, Sberbank confirmed. The smart contracts’ source code ‘can be found on Github’, the bank added, revealing the highly transparency process from ‘placement to the issuer’s performance of its obligations, including settlement in roubles’ was facilitated by the blockchain.
As privately-traded fixed income securities, commercial bonds are commonly placed on the OTC market. The MTS were issued with a maturity period of six months and an annual coupon rate of 6.8 percent, the telecom giant said. ‘The transaction was executed via DVP (Delivery versus payment) settlement assuming simultaneous movement of securities and money using blockchain, the immutable ledger for recording transactions,’ MTS added.
The blockchain also enables the list of participants to change dynamically over time, allowing for the issuance of the bonds to a wider range of investors at a later time. In this instance, all three parties – the issuer, central depository and the investor, received access to the decentralized blockchain ledger to process the transaction. Each participant can digitally exchange documents online and track the status of the transaction in real-time ‘which considerably speeds up’ the overall process, Sberbank said.
Sberbank senior vice president and chief of Sberbank CIB Igor Bulantsev stated:
This MTS bond issue not only allowed us to confirm the reliability, efficiency and secure nature of the blockchain platform and carry out complex structured transactions involving securities, but also demonstrated the potential that this technology has to develop Russia’s digital economy.
As reported previously, Russia’s NSD first began testing blockchain technology as early as April 2016 for an e-proxy voting system, at the time. Since then, the authority has collaborated with the likes of its Chinese counterpart to develop blockchain applications in the post-trade space with a co-operative pact that would even grant ‘mutual access’ to each other’s markets.
In October 2017, the NSD announced trials of its bond trialing platform to successfully facilitate a 500 million rouble issue to Raiffeisenbank.