Today HSBC announced plans to launch HSBC Orion, its DLT-based bond tokenization platform. It says the European Investment Bank (EIB) could 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 rapidly growing part of financial markets. Our customers demand solutions that can deliver the benefits of tokenization in a reliable and secure environment,” said John O’Neill, Global Head of Digital Asset Strategy, Markets and Securities Services, HBSC.
“We plan to use HSBC Orion to facilitate the issuance of digital bonds and expand its use to other products in 2023.” HSBC Securities Services plans to expand digital asset custody support next year.
The digital bond initiative does not involve cryptocurrency but instead uses permissioned blockchain infrastructure. We’ve asked for more details regarding the technology, but haven’t yet received 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. The efficiency of using blockchain makes bond issuance cheaper, making smaller issuances more viable. A shared ledger reduces the need for reconciliation.
HSBC has already conducted blockchain bond trials. In 2020, it worked with tokenization platform Singapore Marketnode to issue a S$400m bond for agricultural company Olam and is one of the launch partners for the Marketnode solution.
At the end of 2021, he performed his 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.
In addition, HSBC has adopted Baton Systems’ DLT technology for foreign exchange settlement. Initially, HSBC Effects everywhere was used between HSBC group companies, then it partnered with Wells Fargo to settle bilateral exchanges.
Meanwhile, bonds and fixed income securities are one of the most popular asset classes for tokenization.
Last year the EIB published a Bond of 100 million euros on the public Ethereum blockchain. Yesterday, UBS issued a Swiss digital bond with a dual listing on both SIX Digital Exchange (SDX) and SIX.
Switzerland, Luxembourg, France and Germany are the most favorable European destinations in terms of legal frameworks. Both UK and the EU launch DLT sandboxes to potentially update laws.