LedgerEdge, the blockchain-based trading platform for corporate bonds, is now in production. The UK-regulated offering was built in collaboration with leading global banks, asset managers, and market makers. So far there are 45 firms in the UK Multilateral Trading Facility (MTF) and 70 globally that are using it or being onboarded. It’s entering a market currently dominated by Bloomberg, MarketAxess, and Tradeweb.
The bond trading startup was co-founded by David Rutter, CEO of enterprise blockchain firm R3 who previously founded LiquidityEdge, the US Treasuries platform acquired by MarketAxess. Unsurprisingly, LedgerEdge uses R3’s Corda distributed ledger technology (DLT).
The platform selectively shares pre-trade data in a peer-to-peer fashion. A key pain point addressed by LedgerEdge is to give its users control over their own data. Most trading venues offer centralized order books, where sell-side firms upload all their data and the trading platform then owns and sells that data, including back to the trader.
In contrast, by using permissioned distributed ledger technology, pre-trade data is not shared in a blanket fashion. Instead, by using smart contracts, a targeted selection of parties gets to see the offers, and data is shared in a peer-to-peer manner.
A related market challenge is best execution. Sharing your offer data with the entire market can make the final trade suboptimal. “With its conditional order logic and its reveal conditions, LedgerEdge allows you to prove best execution without advertising to the market what you’re trying to do,” LedgerEdge CEO David Nicol told Ledger Insights last year.
In developing the solution, the company equally targeted sell-side and buy-side firms, with each side of the market having different priorities. A recent DESK survey shows it’s hit the mark with asset managers. It scored a dominant first spot at 30% in terms of platforms that buy-side firms plan to use for trading in the coming year.
Don’t need a blockchain node
A key challenge with many DLT solutions is the need for participants to go through the hurdle of deploying a node on the distributed network. LedgerEdge has sidestepped this by offering a screen interface and a cloud-based API. It had expected the screen interface to be a temporary offering, but it’s proven a hit. While one might expect some organizations would want the control provided by hosting their own node, there hasn’t been a demand for an on-premises solution.
“The first fully regulated bond trading platform built on distributed ledger technology is an important milestone for the industry,” said David Nicol in a statement today. “Credit markets are on the cusp of a digital transformation that has come to other asset classes, and we are excited to be at the forefront in this important market. Client feedback has been an instrumental part of how we built our ecosystem.”
LedgerEdge’s use of blockchain technology is very different from other bond offerings using the technology. Most tend to digitize the workflow for bond issuance and create security tokens. Several institutions have issued blockchain-based bonds, including the World Bank, European Investment Bank, and Singapore banks DBS and UOB. Indian regulator SEBI is using blockchain to track the status of bond issuances such as credit ratings, coupon payments, and assets that back the bond.
Update: the introduction was updated to reflect that the number of firms includes those that are onboarding.