Today HSBC announced plans to launch HSBC Orion, its DLT-based bond tokenization platform. It says that European Investment Bank (EIB) might use it to issue a GBP tokenized bond under Luxembourg law.
The solution enables the tokenization of both the digital bond and the currency used for settlement, enabling atomic settlement or delivery versus payment (DvP).
“Digital assets are a fast growing part of financial markets. Our clients are demanding solutions that can deliver the benefits of tokenisation within a trusted and secure environment,” said John O’Neill, Global Head of Digital Asset Strategy, Markets & Securities Services, HBSC.
“We plan to use HSBC Orion to facilitate further digital bond issuance and expand its usage to other products in 2023.” HSBC Securities Services is planning to broaden custody support for digital assets next year.
The digital bond initiative does not involve cryptocurrency but instead uses a permissioned blockchain infrastructure. We’ve asked for more details regarding the technology but have yet to receive a response in time for publication.
“Tokenization opens up opportunities for fixed-income issuance, including faster processing and improved operational performance,” said Asif Sherani, Managing Director, Head of DCM Syndicate, EMEA. Efficiencies from using blockchain make it cheaper to issue bonds, making smaller issuances more viable. A shared ledger reduces the need for reconciliation.
HSBC has previously run blockchain bond trials. In 2020 it worked with the Singapore Marketnode tokenization platform to issue a S$400 million bond for agriculture firm Olam and is one of the launch partners for the Marketnode solution.
In late 2021 it executed its experiments with the Banque de France using a wholesale central bank digital currency (CBDC) to settle digital bond transactions. This involved both Hyperledger Fabric and R3 Corda enterprise blockchains, with IBM as the technology partner.
Separately, HSBC adopted DLT technology from Baton Systems for foreign exchange settlement. Initially, HSBC’s FX Everywhere was used between companies within the HSBC Group, and then it partnered with Wells Fargo for settling bilateral trades.
Meanwhile, bonds and fixed income are one of the most popular asset classes for tokenization.
Last year the EIB issued a €100 million bond on the Ethereum public blockchain. Yesterday, UBS issued a Swiss digital bond with a dual listing on both the SIX Digital Exchange (SDX) and SIX.
Switzerland, Luxembourg, France and Germany are the most favorable European destinations in terms of legal frameworks. Both the UK and the EU are launching DLT sandboxes to potentially update laws.