The European Stability Mechanism (ESM), the euro area’s crisis fund, has raised €1 billion in its inaugural digital bond issuance, as we reported earlier this month. Settlement will take place next week using central bank money via the Eurosystem’s Pontes system. While Pontes supports cash tokens linked to the T2 payment system and a trigger solution for direct T2 payments, we believe this issuance uses the trigger path. This will be the first transaction since Pontes went live five weeks ago.
The Bundesbank will act as the issuing and paying agent, with the bond issued on the Deutsche Börse D7 DLT platform using Pontes for delivery versus payment (DvP) settlement. The long three year 3.375% bond matures on 8 April 2030 and received €2.2 billion in orders, including joint lead manager interest. DZ BANK, HSBC, Santander, and Société Générale were joint lead managers, with DZ BANK and Société Générale also acting as Digital Advisory Banks. Clearstream’s setup is hybrid. The bond is created on the D7 DLT platform, but investors hold it through the same Clearstream accounts they use for any other bond and it can be moved to the conventional T2S settlement system. Investors need no DLT capability to buy it, although banks that want Pontes experience can settle on the DLT side.
We previously explored the two main Pontes settlement options and the solution’s roadmap. In theory cash tokens are more appealing as they enable all the efficiencies of on chain settlement. However, in the early stages the cash tokens have some design disadvantages which impact settlement finality, which may mean that direct T2 payments using the trigger solution prove more popular until the next Pontes upgrade.
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