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SINGAPORE, 24 June 2024-- BondbloX Bond Exchange (BBX), the world’s first fractional bond exchange, has announced it has integrated with ICE Bonds to offer access to U.S. corporate, municipal and treasury bond liquidity during ICE Bonds’ extended trading hours, which allows for trading in USD liquidity during U.S., European and Asian hours. ICE Bonds offers fixed income trading for institutional investors, wealth management and investment firms seeking access to U.S. bond liquidity.Through its relationship with ICE Bonds, BondbloX now provides individual investors the ability to buy, track and trade US bond liquidity at the touch of a button through the BondbloX platform. U.S. liquidity will be available to trade on the BondbloX platform from 1 p.m. Singapore time Monday through Friday.&nbsp;“As we continue to help drive trading strategies and real-time investment decision-making for individual investors across the globe, we’re excited to work with ICE Bonds to provide greater transparency and deeper USD liquidity across fixed income markets on our platform,” said Rahul Banerjee, CEO of BondbloX. “We launched the BondbloX platform for individual investors last year to simplify the buying, tracking and trading of bonds, and by working with ICE Bonds, we’re expanding our offering to offer deeper access to USD bond liquidity.”The BondbloX platform, inaugurated in October 2020 for institutional offering, uses an exchange model for all-to-all order matching contrasting with the over-the-counter model that currently exists with dealers servicing individual investors over the telephone. The BondbloX platform subsequently extended its global service offering to eligible individual investors with its launch of Asia’s First Bond Trading Platform for Individual Investors in October 2023.&nbsp; By working with ICE Bonds, investors on the BondbloX platform now have access to US treasury and US corporate bond liquidity during U.S., European and Asian trading hours.“We are delighted to have BondbloX be the first platform to offer their customers access to our expanded liquidity network,” said Pete Borstelmann, President, ICE Bonds. “By extending the trading hours of our platform, we’re not only broadening the depth and breadth of our network, but also enhancing the value of the liquidity within it.&nbsp; This underscores our commitment to providing our clients with greater accessibility and enriched trading opportunities.”ICE Bonds is a part of Intercontinental Exchange (NYSE: ICE), a leading global provider of technology and data.&nbsp;About Intercontinental Exchange<a href="https://www.ice.com/">Intercontinental Exchange, Inc.&nbsp;</a>(NYSE: ICE) is a Fortune 500 company that designs, builds, and operates digital networks that connect people to opportunity. We provide financial technology and data services across major asset classes helping our customers access mission-critical workflow tools that increase transparency and efficiency. ICE’s futures, equity, and options&nbsp;<a href="https://www.theice.com/about/exchanges-clearing">exchanges&nbsp;</a>-- including the&nbsp;<a href="https://www.nyse.com/">New York Stock Exchange&nbsp;</a>-- and&nbsp;<a href="https://www.theice.com/solutions/clearing">clearing houses&nbsp;</a>help people invest, raise capital and manage risk. We offer some of the world’s largest markets to trade and clear energy and environmental products. Our fixed income,&nbsp;<a href="https://www.theice.com/about/fixed-income-data">data services&nbsp;</a>and execution capabilities provide information, analytics and platforms that help our customers streamline processes and capitalize on opportunities. At&nbsp;<a href="https://www.theice.com/about/mortgage-technology">ICE Mortgage Technology&nbsp;</a>, we are transforming U.S. housing finance, from initial consumer engagement through loan production, closing, registration and the long-term servicing relationship. Together, ICE transforms, streamlines, and automates industries to connect our customers to opportunity.Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located&nbsp;<a href="http://www.intercontinentalexchange.com/terms-of-use">here&nbsp;</a>. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 -- Statements in this press release regarding ICE's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 8, 2024.&nbsp;About ICE BondsTrading and execution services are offered through ICE Bonds Securities Corporation or ICE Bonds, member&nbsp;<a href="https://www.finra.org/">FINRA</a>, MSRB and <a href="https://www.sipc.org/">SIPC</a>. The information found herein, has been prepared solely for informational purposes and should not be considered investment advice, is neither an offer to sell nor a solicitation of an offer to buy any financial product(s), is intended for institutional customers only and is not intended for retail customer use.&nbsp;About BondbloXFounded in 2016, The BondbloX Bond Exchange is the world’s first fractional bond exchange. It works towards one vision - provide easy access to bonds for all investors.&nbsp;It is regulated as a Recognized Market Operator by the Monetary Authority of Singapore and is backed by Citi, MassMutual Ventures as investors. Additional information may be found at&nbsp;<a href="https://bondblox.com/">https://bondblox.com/</a>

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BondbloX Bond Exchange (BBX), the world’s first fractional bond exchange, has announced it has integrated with ICE Bonds to offer access to U.S. corporate, municipal and treasury bond liquidity during ICE Bonds’ extended trading hours, which allows for trading in USD liquidity during U.S., European and Asian hours. 

BondbloX to Offer Access to U.S. Corporate, Municipal and Treasury Bond Liquidity with Integration to ICE Bonds

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BondbloX has successfully obtained a SOC 2 Type II accreditation, showcasing our commitment to the highest standards of data security and compliance. This achievement reflects our dedication to safeguarding your trust and ensuring the confidentiality and integrity of your data.The EY team has played a crucial role in evaluating and enhancing our security posture, ensuring alignment with industry standards and best practices. Their comprehensive gap assessment has provided valuable insights into areas of improvement, and their dedication to completing the SOC 2 report reflects our commitment to maintaining a secure and reliable environment for our stakeholders. &nbsp;

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BondbloX has successfully obtained a SOC 2 Type II accreditation, showcasing our commitment to the highest standards of data security and compliance.

BondbloX Obtains SOC 2 Type II Accreditation

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Singapore, 9 November 2023&nbsp;– Singapore-based Fintech&nbsp;<a href="https://bondblox.com/">BondEvalue Pte. Ltd</a>. has added new investor Beacon Venture Capital, the corporate venture arm of Thailand’s Kasikornbank, to its cap table as part of a US$6m Series B round. Beacon Venture Capital joins existing shareholders MassMutual Ventures and Citigroup who also participated in the round.&nbsp;Other investors include existing shareholders Potato Productions, a company helmed by entrepreneur Lee Han Shih, and Octava, a Singapore-based family office.&nbsp;The latest round follows a Series A raise of US$6m in 2021. This additional funding will allow the Company to scale BondbloX Bond Exchange (BBX), its digital exchange for trading fractional and full-size bonds, as well as grow its international expansion to Gujarat International Finance Tec-City (GIFT City) in India, which recently went live.&nbsp;Powered by distributed ledger technology, BondbloX enables investors to buy and sell bonds in denominations of US$1,000 instead of the usual US$200,000, and through a public exchange where prices are highly transparent.&nbsp;BBX has seen strong interest from global clients since launching the platform to individual investors last month. BBX also has future plans to list US Bonds (Treasuries as well as Corporate Bonds) on the platform.This announcement follows the announcement made last month that Citi is the first digital custodian participant of BondbloX Bond Exchange (BBX) for the institutional market. The partnership will allow Citi’s clients that meet certain criteria to become BBX participants and begin trading bonds (both fractionalised and full-sized) almost immediately.&nbsp;“We are immensely honoured to welcome Beacon VC to our Series B round, as well as other new and existing shareholders including Citi and MassMutual Ventures,” said Dr. Rahul Banerjee, Co-Founder and CEO. “The bond market is broken globally, and BondbloX is on a mission to allow individual investors the same access to the market that institutional firms enjoy. We look forward to working together with Beacon VC and other investors to redefine Bond investing” he added.&nbsp;In joining the recent round Thanapong Na Ranong, Managing Director of Beacon VC, said, “BondbloX is truly innovating Bond investing and disrupting an asset class which has lagged in digitization. The use of distributed ledger technology coupled with traditional financial custodians excites us and has great potential to re-shape the bond market for all.”Henry Salmon, Head of Investments, Securities Services, Citi, said:&nbsp;“The digitization of markets, assets and processes is an accelerating industry trend and a key investment theme for Citi. We are delighted to continue our investment in BondbloX. I believe their embrace of new technology and the innovation in the bond market has delivered a unique value proposition.”&nbsp;About Beacon Venture CapitalBeacon VC&nbsp;is a wholly-owned corporate venture capital fund of Kasikornbank PLC (SET: KBANK), a leading commercial bank in Thailand with the highest mobile penetration and largest SME base. Beacon VC focuses on strategic investments in early to growth-stage technology startups covering financial technology (fintech), consumer internet, and enterprise technology. Beacon VC has also recently launched an impact investment mandate, to invest in digital technologies which create a positive impact on the environment and society.&nbsp;Media Contacts:Cognito, for BondbloX:&nbsp;bondblox@cognitomedia.com

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BondbloX raises US$6 million in Series B funding round - Beacon VC, the corporate venture arm of Thailand’s Kasikornbank, joins as new investor

BondbloX raises US$6 million in Series B funding round

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<ul><li>The platform launched in Asia, but is accessible to individual investors across the globe,&nbsp;</li><li>It aims to democratize access to the global bond markets via a fractional investment model</li></ul>SINGAPORE, 25 October 2023:&nbsp;<a href="https://bondblox.com/">BondbloX</a> Bond Exchange (BBX), the world’s first fractional bond exchange, has today announced that its unified platform to track and trade bonds will be available for individual investors globally<a href="#_ftn1">[1]</a>. The launch of the platform offering, which follows the exchange’s success with its institutional offering, allows BondbloX to redefine the way that individual investors access bonds.Through the BondbloX platform, individual investors will be able to buy, track and trade bonds at the touch of a button through the integrated app. BondbloX uses an exchange model for all-to-all order matching contrasting with the over-the-counter model that currently exists with phone dealers servicing individual investors. This allows individual investors to access transparent inter-bank bond pricing with no hidden spreads. The platform currently offers a wide selection of USD and SGD denominated corporate and sovereign bonds and will soon enable trading of US treasuries and US corporate bonds.Through BondbloX, individual investors will have access to:&nbsp;<ul><li>A transparent fee structure of 0.20% per trade and 0.20% p.a. of bond holdings</li><li>A wide selection of 70+ fractional USD and SGD bonds with a minimum denomination of just $1,000</li><li>A wider selection of 10,000+ full-sized bonds of $200,000 / S$250,000</li><li>Digital access to the platform from their smartphone.</li></ul>Rahul Banerjee, CEO and Co-Founder of BondbloX commented: “Bonds are becoming an increasingly attractive asset class in the face of market volatility, with the opportunity for stability and higher returns. However, they remain unattainable for many investors due to the complexity of buying, tracking and trading this asset class, and we know that many individual investors simply don’t know where to begin when it comes to the world’s bond markets. The launch of BondbloX’s offering to individual investors is designed to solve this issue.&nbsp;“We want to simplify access to bonds, giving a new audience the opportunity to diversify their portfolios and lock in these higher yields. We’re excited to be able to reach individual investors not only in Asia, but across the world, and democratise access to this exciting asset class through fractional investing,”&nbsp;he added.BondbloX has been active within the institutional market since 2016 and is backed by Citi and MassMutual Ventures. The exchange is also regulated as a Recognised Market Operator (RMO) by the Monetary Authority of Singapore (MAS).&nbsp;This announcement follows the&nbsp;<a href="https://bondblox.com/announcements/citi-to-become-first-digital-custodian-on-bondblox-bond-exchange">news last month</a> that saw Citi revealed as the first digital custodian participant of&nbsp;<a href="https://bondblox.com/">BondbloX Bond Exchange (BBX) for the institutional market.</a> The partnership will allow certain Citi clients to become BBX participants and begin trading bonds (both fractionalised and full-sized) almost immediately.&nbsp;Individual investors can sign up to trade bonds on BondbloX by&nbsp;<a href="https://onelink.to/tzzxev">clicking here</a>.<a href="#_ftnref1">[1]</a> subject to any local specific requirements

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BondbloX Bond Exchange (BBX), the world’s first fractional bond exchange, has today announced that its unified platform to track and trade bonds will be available for individual investors globally.

BondbloX Launches Asia’s First Bond Trading Platform for Individual Investors

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Hong Kong/Singapore/London/ New York – Citi Securities Services today announced that it has become the first digital custodian participant of BondbloX Bond Exchange (BBX), the world’s first fractional bond exchange using the latest in distributed ledger technology.BBX was launched in 2020 to simplify bond investing by&nbsp;allowing investors to track &amp; trade bonds electronically. The launch was seen as a significant leap forward in revolutionizing bond trading, making it more accessible to a broader range of investors by fractionalizing full-sized bonds and bringing many of the benefits of equities trading to the bond market, in terms of improved access to the exchange trading of bonds and now the provision of settlement &amp; custodial services in the BBX market.&nbsp;The partnership with Citi allows Citi’s clients that meet certain criteria, to become BBX participants and begin trading bonds (both fractionalized and full-sized) almost immediately, with Citi providing seamless settlement and custody services at the back end.Citi was initially chosen by BondbloX in 2021 to act as custodian for the underlying bonds issued and traded on its exchange as fractionalized assets (called “BondbloX”). The recent extended relationship unlocks additional opportunities and benefits for Citi’s clients as well as other BBX participants. In addition to benefiting from the services of a digital custodian, participants gain wider access to the global bond market enabling greater diversification of their investment portfolios, and immediate, atomic settlement at the point of trade execution.&nbsp;“The decision to partner with Citi was an easy one, given their reputation as a leading securities services provider and our history of collaboration,” commented Dr. Rahul Banerjee, CEO and Co-Founder of BondbloX. “This partnership will enable Citi’s clients and others to enjoy the full benefits of bond trading, coupled with Citi’s securities services support, almost immediately. Digital Custody is the next big step in the transformation of the bond market, making bond markets, more transparent, electronic and accessible to all. Now, bonds are more easily accessible to everyone.”“Today’s announcement demonstrates our commitment to investing in the future of digital financial market infrastructure by building products and services to support the current and future needs of our clients,” stated Matthew Bax, Global Head of Custody for Citi Securities Services. “We are committed to partnering with BondbloX on their journey to transform and simplify the bond trading and investing journey.”“This proprietary digital custody technology is scalable and will allow us to provide settlement and custody services for clients investing in assets issued on permissioned blockchain networks and digital FMIs. It enables Citi to connect to newly permissioned networks as they emerge and provide a fully consolidated custody service through a single operating model,” said Nadine Teychenne, Head of Digital Assets for Citi Securities Services. “To develop this service, we leveraged our expertise in exchange-traded settlement and custody services which we provide today in around 70 FMIs globally.”With approximately USD$27.7 trillion (as of 30 June, 2023) under custody, administration and trust worldwide, and a leading proprietary network spanning more than 60 markets, Citi Securities Services provides cross-border support for clients with extensive on-the-ground local market expertise, innovative post-trade technologies, customized data solutions, and a wide range of securities services solutions that can be tailored to meet clients’ needs.Citi continues to develop digital asset solutions, in line with its goals and risk appetite, using a unified set of shared technology capabilities and a common strategic approach. These innovative solutions enhance Citi’s products and services including digital money, trade, securities, custody, asset servicing and collateral mobility.&nbsp;About&nbsp;Citi:Citi&nbsp;is&nbsp;a&nbsp;preeminent&nbsp;bankingpartner&nbsp;for&nbsp;institutions&nbsp;with&nbsp;cross-border&nbsp;needs,&nbsp;a&nbsp;global&nbsp;leader&nbsp;in wealth management and a valued personal bank in its home market of the United States. Citi does business in nearly 160 countries and jurisdictions, providing corporations, governments, investors, institutions, and individuals with a broad range of financial products and services.Additional information may be found at&nbsp;<a href="http://www.citigroup.com/">www.citigroup.com</a>&nbsp;| Twitter:&nbsp;<a href="https://twitter.com/Citi">@Citi</a>&nbsp;| LinkedIn:&nbsp;<a href="http://www.linkedin.com/company/citi">www.linkedin.com/company/citi</a>&nbsp;|&nbsp;YouTube:&nbsp;<a href="http://www.youtube.com/citi%7C">www.youtube.com/citi</a>&nbsp;| Facebook:&nbsp;<a href="http://www.facebook.com/citi">www.facebook.com/citi</a>&nbsp;About BondbloX:Founded in 2016, we are a team of debt capital market bankers and technologists, spread across Singapore, India and Mexico, working to realize one vision - provide easy access to bonds for all investors. The BondbloX Bond Exchange is the world’s first fractional bond exchange, regulated as a Recognized Market Operator by the Monetary Authority of Singapore. We are backed by Citi &amp; MassMutual Ventures as investors.&nbsp;Additional information may be found at https://bondblox.com/&nbsp;Media&nbsp;Contacts:<figure class="table"><table><tbody><tr><td>Arundathi&nbsp;Abyshekar</td><td><a href="mailto:arundathi.abyshekar@citi.com">arundathi.abyshekar@citi.com</a></td><td>&nbsp; &nbsp; +852&nbsp;2868&nbsp;7684&nbsp;</td></tr><tr><td>Kai Feng Ho</td><td><a href="mailto:kai.feng.ho@citi.com">kai.feng.ho@citi.com</a></td><td>&nbsp; &nbsp; &nbsp;+65 6657 5570</td></tr></tbody></table></figure>

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Citi Securities Services today announced that it has become the first digital custodian participant of BondbloX Bond Exchange (BBX), the world’s first fractional bond exchange using the latest in distributed ledger technology.

CITI TO BECOME FIRST DIGITAL CUSTODIAN ON BONDBLOX BOND EXCHANGE

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<h4>Introduction</h4>Fractionalization has captured the imagination of the investing public. The promise is simple - everyone can buy anything. Fractional assets like stock or BondbloX allow anyone to buy a slice of an Apple share even if they don’t have or want to spend the $147 odd that it is currently trading at, or a fraction of the HSBC 6% bond, that is currently available at a minimum investment size (denomination) of $200,000. Fractionalization powers compossibility, which is the ability to create or compose a customized portfolio for each investor. Let’s say that a wealthy investor currently wishes to invest $1 million in Asian bonds. With the $200,000 minimum denomination, their portfolio can only have five bonds, which would make it concentrated. The other option is to put the money in a fund but then you lose the customization. If a private bank or an independent financial advisor wishes to do both diversification and customization, then you need fractionalization. The other big trend being observed is the rise of self-directed investors who trade on online brokerages, which are attracting millions of first-time investors. Many of them like to dip their toes first (invest smaller amounts) and therefore tend to like fractional assets.<h4>How was it done in the past and what are the risks</h4>Fractionalization per se is not new. Pass-through notes have existed for decades. These involve the creation of a special purpose vehicle (SPV) which acquires the assets and then issues the fractional notes. The main disadvantage is that these SPVs are quite often located in offshore tax havens and in the days of the Panama or Pandora papers, keep coming up for scrutiny for their lack of transparency. Less inflammatory but equally worrisome is that they often have many layers of accountants, fund administrators etc. that need to work together to achieve the desired outcome. Such structures typically have a sponsor and only the sponsor makes markets or otherwise sell these notes. This makes them even more illiquid.A broker can also do a simple fractionalization wherein it buys on its balance sheet and sells the pay-off to its clients. The on-balance sheet exposes the buyer to default risk of the broker. Unlike during the Lehman Brothers default saga , buyers generally understand this risk in a much better way today.The modern method of doing fractionalization is with the use of Distributed Ledger Technology (DLT). This method is used by BondbloX and results in the creation of Bond Depository Receipts (BDR). The original full-sized bonds are kept (lock-boxed) with a designated custodian and then the notes are issued by an exchange (un-sponsored) or by the original issuer for raising new money (sponsored). This structure has been in use for many years across the equity markets. In the USA, this structure is called an American Depository Receipt (ADR) (<a href="https://www.sec.gov/investor/alerts/adr-bulletin.pdf">SEC, 2012</a>). While the focus of ADR was to change the currency of the issuance, it also had a fractionalization / aggregation feature to get a meaningful nominal share price.Legally, this structure has been around for a long time. DLT further increases its transparency and reduces both the time and cost for the issuance of the depository receipt. In the new international financial services centre (IFSC) at Gift City, India’s NSE plans to use the un-sponsored DR structure to create liquidity in US stocks for Indian retail investors (<a href="https://www.business-standard.com/article/markets/nse-to-start-trading-in-us-stocks-at-gift-city-list-of-scrips-not-yet-out-121080901677_1.html">Business Standard, 2021</a>).Another major benefit of fractionalization of assets such as bonds with high minimum denominations is the ability for the investor to now create a diversified portfolio with a much lower capital. A minimum trading lot of $1,000 can help an investor build a reasonably well-diversified portfolio with as little as $10,000 and a very well-diversified portfolio with $50,000. This kind of diversification significantly reduces the concentration risk in a portfolio especially with bonds where more focus tends to be on the return OF principal rather than return ON principal. It also improves access to markets that are traditionally not available for all investor types, thereby furthering the democratising of financial markets.Investors with some risk appetite can set-aside small amounts to invest in BondbloX trading at discounts. This should generate a decent capital upside apart from a rich return by way of coupon payment. There are always such opportunities in the fixed income market. Fractionalization allows investors to take smaller bets which they would otherwise not.Four Tests For Perfect Fractionalization• Uniform claim: The claim under the fractional assets should be as per the formula Fractional claim = Value of Asset / Number of fractions. The only thing in the asset that can’t be fractionalized is the voting rights. These rights should then not be sold away.• Bare trusts should be used to convey the rights from the original asset to the fraction• Every entity in the fractionalizing process such as the custodian banks and the issuing exchange should be a regulated financial institution. The entire process should be in the public domain and the entities involved should not take principal positions in the assets, so that there is no conflict of interest.• Dual Fungibility should exist between the original assets and the fractional assets. While this dual fungibility is a must, it is also ideal that the fungibility happens without economic friction i.e. at zero cost and zero time.Lastly, I leave you with a conundrum, it holds to common wisdom that all told, the fractional asset will be more expensive than the full asset. For example, a piece of sashimi is more expensive per gram than buying the full Tuna. However, financial assets can sometimes behave counter-intuitively if the fractions bring in a new source of demand. This was the original reason of the ADRs. Other reasons or circumstances which may create this is if the demand goes up after fractionalization. Most CFOs with the notable exception of the Berkshire Hathaway shares (currently at $427,700 apiece), keep doing splits to keep the nominal price in balance. In the bond market with the lack of dealer inventory (where buyers can’t buy and sellers can’t sell), the increase in the number of investors are likely to provide a strong improvement in the market efficiency.To conclude, DLT and the depository receipt structure follow a transparent and market-based mechanism to fractionalize assets. Dual fungibility ensures that the additional liquidity is additive and complements extant liquidity. Let everyone buy anything!<h4>References</h4>Modak, Samie (2021, August 10). NSE to start trading in US stocks at Gift City, list of scrips not yet out. Business Standard. Retrieved October 15, 2021, from <a href="https://www.business-standard.com/article/markets/nse-to-start-trading-in-us-stocks-at-gift-city-list-of-scrips-not-yet-out-121080901677_1.html">https://www.business-standard.com/article/markets/nse-to-start-trading-in-us-stocks-at-gift-city-list-of-scrips-not-yet-out-121080901677_1.html</a>OECD (2020). The Tokenisation of Assets and Potential Implications for Financial Markets, OECD Blockchain Policy Series. Retrieved October 15, 2021, from <a href="https://www.oecd.org/finance/The-Tokenisation-of-Assets-and-Potential-Implications-for-Financial-Markets.pdf">https://www.oecd.org/finance/The-Tokenisation-of-Assets-and-Potential-Implications-for-Financial-Markets.pdf</a>SEC (2012, August). American Depository Receipts, SEC Investor Bulletin. Retrieved October 15, 2021, from <a href="https://www.sec.gov/investor/alerts/adr-bulletin.pdf">https://www.sec.gov/investor/alerts/adr-bulletin.pdf</a>Woo. G., &amp; Thiel, S. (2020, December 1). Fractionalizing the future of asset ownership, securely. Nasdaq. Retrieved October 15, 2021, from <a href="https://www.nasdaq.com/articles/fractionalizing-the-future-of-asset-ownership-securely-2020-12-01">https://www.nasdaq.com/articles/fractionalizing-the-future-of-asset-ownership-securely-2020-12-01</a>.

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Fractionalization has captured the imagination of the investing public. The promise is simple - everyone can buy anything. The BondbloX Bond Exchange is the world’s first fractional bond exchange, allowing investors to buy and sell bonds in denominations of SGD/US$1,000 000 instead of the usual SGD 250,000/US$200,000, providing significant diversification opportunities. The article elaborates on the advantages fractionalization brings and how bonds are fractionalized using distributed ledger technology at the BondbloX Bond Exchange.

Honey, I shrunk the bonds! But you can funge them back again!

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2:58 PM: Place Market Sell order for bonds 2:59 PM: Order Matches 3:00 PM: Cash received in your account, FAST transfer out of the exchangeFrom placing the order to receiving cash, the process is now possible in a matter of minutes. Traditionally, it took 48 hours, excluding holidays. The Bondblox Bond Exchange currently operates on this model.This is the alchemy of atomic settlement, another way to describe instant Delivery-Versus-Payment (DVP). It works both ways, if a fund manager receives a large cash inflow into his bond fund, it can start earning coupons from the same day! If an individual finds himself in the need for money suddenly, a lot of money, his bond portfolio can be sold instantly to generate liquidity.<h4>What is Atomic Settlement?</h4>Atomic settlement (T) is defined as the instant exchange of two assets whereby the transfer of one asset occurs if and only if the transfer of the other asset also occurs. Traditionally, bonds are bought and sold in decentralised over-the-counter (OTC) markets through intermediaries who compete to fulfil trade obligations. Orders between buyers and sellers are matched at time T, while the actual exchange of securities for cash currently takes place later – either at the end of the day (T+0) or one to three days later (T+1 to T+3).<h4>Why Do We Need Atomic Settlement?</h4>Today, trades that are settled DVP still have a lot of settlement risk between the counterparties. One party will need to pay for an asset (in a buy trade) or deliver an asset (in a sell trade) while the other party delivers or pays accordingly only after the receipt of funds or assets. Both sides agree on a period of time after which this settlement happens, and each side knows that there exists the risk that parties may default on their obligations. In a scenario where a bond has much higher volatility, such as during the height of the COVID-19 pandemic, or like Evergrande has today, these risks are massive. Troubled times present a lot of anguish among bond owners and those who wish to buy into market opportunity. As a collective market, we tend to have both buyers and sellers , but the market lacks the mechanism to match them <a href="https://bondevalue.com/news/troubled-bond-market-sellers-cant-sell-buyers-cant-buy/">(Dr Rahul Banerjee, 2020)</a>. It is usually the case that the market is unable to match buyers and sellers because of the heightened risks of settlement failures that exist in such situations, a problem that atomic settlement can look to mitigate.Settlement risk carries more impact than just loss of funds. For an industry that runs heavily on trust between bond investors and their brokers, the existence of such settlement risk can poison trust and damage the intermediary’s reputation, especially in times of crisis. Imagine being a customer of Lehman Brothers during the financial crisis of 2008. In the weeks leading up to their bankruptcy, there was widespread fear that Lehman Brothers would not fulfil their obligations of delivering securities or paying cash. There were also many customers and broker accounts who moved to other broker-dealers to avoid the inflating settlement risk of dealing with the bank. Costs associated with crisis management also rose for Lehman Brothers, as they had needed to provide additional collateral, deposits and margins at clearing houses (Fleming &amp; Sarkar, 2014).Previously, it made sense to have a central securities depository (CSD) to immobilise paper certificates and eliminate the need to settle trades by physical transfers. Today it is different, securities are maintained as electronic book-entry records in CSDs instead. As long as the exchange of assets are not settled instantaneously, settlement risks will continue to pervade the industry.<h4>Atomic Settlement is (Mostly) Still Not a Reality Today</h4>The reason atomic settlement has been impossibly hard to achieve is that the exchange of cash and securities need to happen simultaneously. This is not an easy feat to achieve, given how it took years for the US to shorten the duration of its settlement cycle.Historically, trades took 5 business days to settle. It was not until 1995 when the US settlement cycle shortened from T+5 settlement to T+3 settlement, and it was 22 years before the settlement cycle was shortened again to T+2 in 2017. In May 2021, the Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and The Depository Trust &amp; Clearing Corporation (DTCC) announced plans to migrate to T+1 settlement by the end of Q3 2021.The transition towards instant settlement is not an easy process due to well established legacy technology for settlements, the issue of settlement liquidity, cross-border inefficiencies, and operational risk in current market operating hours.The settlement systems for cash within a country are typically handled by central banks along with commercial banks and specialist payment organisations, which still rely on legacy technology for settlement. While the technology has improved over the years to adapt to enhance efficiencies and shorten settlement cycles, there appears to be a limit on how much time can be shaved off in the settlement cycle based on the existing technology. Banks and financial institutions must undergo high-risk, expensive, and long projects if they wish to overhaul their existing settlement process.In a letter by SIFMA to the US Securities and Exchange Commission (SEC), SIFMA highlighted that moving to same-day settlement remains a challenge as it would “require re-engineering how securities trade and settle” in the following areas:<ol><li>The mechanics of global settlements, FX, margin investing, and securities lending need to be redesigned to fulfil regulatory and contractual requirements in under 12 hours (from the current 24 hours)</li><li>Retail investors may need to pre-fund accounts</li><li>Smaller firms and vendors may need to bear the competitive burden and resources to shift to T+0 settlement</li><li>Industry stakeholders need to operate for longer hours, which may impact the ability to carry out non-automated activity, increasing potential for trade failures</li></ol>Another barrier to instant settlement is settlement liquidity, which counterparties may face if there is insufficient cash or securities to fulfil trade obligations. While the Central Securities Depositories Regulation (CSDR) introduced in 2014 has a settlement discipline regime which penalises trade failures, it does not eliminate the fact that short-traded positions can still exist and there will be a need to cover these positions to avoid settlement failure. Intermediaries will need additional resources or improved inventory management to access and borrow securities in a timely manner to support instant settlement while complying to CSDR.Next, there are cross-border inefficiencies that impede the transition to instant settlement. International cash and securities transfers are even more complex and involve primarily the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network and large global banks. SWIFT is a messaging network used by banks and financial institutions to send and receive transfer instructions quickly and securely. However, while the merits of SWIFT transfers lie in its extensive network, transfers via SWIFT are not instant, and the speed of delivery and payment via SWIFT instructions also depend on whether the initiating bank has any direct relationship with the destination bank. Moreover, firms that handle cross-border transfers of cash and securities will need to maintain holdings in multiple CSDs across different jurisdictions, making it challenging to effectively manage inventory and meet local settlement obligations. Unless all firms have good inventory management capability across multiple markets, instant settlement cannot be achieved easily.Lastly, the ability to settle cross-border transactions instantly also depends on the market operating hours. Trades between two markets and time zones can only take place if both markets are open at the same time. Instant settlements across borders and time zones cannot happen unless market operating hours become longer or even round-the-clock.<h4>DLT allows Atomic Settlement, today</h4>According to the Bank for International Settlements (BIS), tokenisation of securities is “the process of issuing new securities or representing existing securities as digital tokens”. Most tokenisation projects of cash payments and securities take place using distributed ledger technology (DLT), which is a decentralized database managed by multiple participants across multiple locations that enables participants to access, validate and update records simultaneously and securely. Unlike the exchange of book-entry record of cash and securities, which require the CSD to verify the identity of parties involved before the transfer can occur, transfer of digital tokens are authorised using digital signatures in the form of public or private keys.With tokenisation, existing account-based DvP exchanges of cash and securities (account vs account or AvA transfers) can be complemented by three new arrangements:<ol><li>Account-based securities in exchange for cash tokens (account vs token or AvT transfer)</li><li>Security tokens in exchange for account-based cash (token vs account or TvA transfer)</li><li>Security tokens in exchange for cash tokens (token vs token or TvT transfer)</li></ol>Both AvT and TvA transfers require technical and legal compatibility across traditional account-based systems and the newer token-based systems.TvT transfers can take place on a single ledger or across ledgers. For TvT transfers on the same ledger, both cash and securities are recorded on the same ledger, and use smart contracts for clearing and settlement to achieve atomic settlement:<ol><li>Both the buyer and seller submit their tokens (using digital signatures) as inputs for the smart contract and instructions to transfer cash token for securities token (for the buyer) or securities token for cash token (for the seller)</li><li>The smart contract is submitted for validation on the distributed ledger</li><li>If transaction is validated, cash and securities tokens are simultaneously and instantly transferred to respective recipients</li><li>If transaction validation fails, the smart contract for the exchange of tokens is not executed and the tokens remain with their original owners</li></ol>At Bondblox, the system is a single ledger system that has both bonds and cash on a single ledger in a prevalidated state ensuring settlement guarantee.<figure class="image"><img src="/uploads/The_Alchemy_of_Atomic_Settlement_6168f92647.png" alt=""></figure>Source: European Central Bank and Bank of Japan, Project StellaAround the world, central banks and financial institutions have embarked on tokenisation projects in their quest towards atomic settlement.In Singapore, the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) collaborated on Project Ubin III to achieve connectivity and settlement finality across separate ledgers. Five key observations were identified from this project:<ol><li>Smart contracts can be used to integrate and programme conventional rulebook conventions</li><li>As developments are underway to compress the trade settlement cycle, regulators need to constantly re-evaluate and update existing rulebooks and regulations on settlement time and duration to maintain a fair and orderly market</li><li>There is a need to appoint an arbitrator for dispute resolution relating to principal exposure risk, such as in cases when buyer does not withdraw securities before time limit expires, allowing seller to recover the securities and receive cash payments</li><li>There remains the need to safeguard privacy of investors while establishing connectivity across ledgers</li><li>The mechanisms that lock assets to their corresponding ledger have an impact on participants and market liquidity.</li></ol>In the Philippines, the Union Bank of the Philippines and Standard Chartered Ventures have co-created a blockchain platform for retail bond issuance, as part of a proof-of-concept to tokenise securities.In India, the Securities and Exchange Board of India (SEBI) announced that stock exchanges, clearing houses and depositories will need to offer T+1 settlement from 2022 onwards, in addition to the existing T+2 settlement cycle. However, Association of National Exchanges Members of India (ANMI) has responded to SEBI with concerns that several operational and technical challenges need to be tackled before existing market infrastructure can efficiently handle the shorter settlement cycle.<h4>Benefits of Atomic Settlement</h4>Tokenised assets that exist on permissioned, distributed ledgers have restrictions on who can validate transactions on the ledger, who can initiate transactions on the ledger and to what extent can parties view information on the ledger. This nature of transfer instruction validation on DLT allows for four key benefits – secure transactions, simultaneous action, fast settlements, and cost savings.<ol><li>Anyone and trade with anyone, even in turbulent markets, which makes the markets truly open and democratic. This allows new and smaller players to access the level of liquidity that today is available to the largest.</li><li>The DLT can process multiple actions simultaneously, reducing the time required in the clearing and settlement stages.</li><li>Removal of third parties means less back-and-forth between involved parties. The use of DLT also allows for instructions to be processed immediately, which can reduce or eliminate time needed for settlement. The ledger is the single source of truth and the record of ownership</li><li>It is far cheaper as fee charges do not have to be paid to various intermediaries who exist in the traditional chain.</li></ol><h4>Conditions for True Atomic Settlements</h4>It is worth highlighting that using DLT alone does not equate to atomicity in settlements. For the financial market to successfully transit to atomic settlements, we will need the following to happen:<ol><li>Interoperability of multiple financial institutions’ ledgers - it is insufficient for financial institutions to merely migrate towards DLT. Connectivity between the different ledgers must be built and optimised to facilitate seamless DvP transfers across ledgers.</li><li>Tokenising both cash and securities – there are limitations to the operational efficiencies that can be achieved with existing technology for settlement. While TvA and AvT transfers offer an alternative to DvP settlements, they should be viewed as transitional settlement mechanisms in the operational migration towards instant settlement via TvT transfers.</li><li>Robust rulebooks that lay out governing rules and regulation on the time and duration of settlement are needed. Additionally, a well laid out mechanism for dispute resolution and correction of erroneous trades if they happen are necessitated.</li><li>Participants may need pre-funding, as they may not be fully up to speed due to institution/ currency specific legacy systems.</li></ol><h4>Conclusion</h4>The progress towards achieving atomic settlement is a challenging road but one that needs to be taken. The Bondblox Bond Exchange has demonstrated over the past year that atomic settlements work and greatly benefit participants. The current decade will be one where atomic settlements will become the norm, allowing a reduction in systemic risk and efficient markets.<h4>References</h4>Bank of International Settlements. (2020). On the future of securities settlement. Retrieved from: <a href="https://www.bis.org/publ/qtrpdf/r_qt2003i.htm">https://www.bis.org/publ/qtrpdf/r_qt2003i.htm</a>Fleming, M. &amp; Sarkar, A. (2014). The Failure of Resolution of Lehman Brothers. Retrieved from Federal Reserve Bank of New York Economic Policy Review, December 2014 edition: <a href="https://www.newyorkfed.org/medialibrary/media/research/epr/2014/1412flem.pdf">https://www.newyorkfed.org/medialibrary/media/research/epr/2014/1412flem.pdf</a>Mark Profeti (n.d.). 4 Barriers to Instant Settlement. Retrieved from: <a href="https://www.globalcustodian.com/blog/distributed-ledger-technology-key-t0-settlement/">https://www.globalcustodian.com/blog/distributed-ledger-technology-key-t0-settlement/</a>Rahul Banerjee (2020). The Troubled Bond Market – When Sellers Can’t Sell and Buyers Can’t Buy. Retrieved from: <a href="https://bondevalue.com/news/troubled-bond-market-sellers-cant-sell-buyers-cant-buy/">https://bondevalue.com/news/troubled-bond-market-sellers-cant-sell-buyers-cant-buy/</a>&nbsp;

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The Alchemy of Atomic Settlement

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<h4>What is BondbloX?</h4>BondbloX represents fractional bonds traded on the BondbloX exchange, and contains fractional interests in the Underlying Bond.Conceptually, BondbloX works exactly like American Depositary Receipts (ADRs) or Global Depository Receipts (GDRs) where an issuer, in this case, BondEvalue Pte. Ltd (a Recognized Market Operator under the Monetary Authority of Singapore), re-lists the original bond (Underlying Bond) onto an exchange in a smaller minimum denomination, thereby allowing it to be traded in fractional sizes.The BondbloX created works using simple pass-through mechanics where the beneficial entitlements to the Underlying Bonds are conferred to the BondbloX holder, based on the fractional size held.<h4>BondbloX Exchange</h4>Structurally, BondbloX exchange works entirely different from traditional bond markets, as it uses an exchange model for all-to-all order matching. This contrasts the over-the-counter model that currently exists with phone dealers servicing individual investors.Settlement also happens instantaneously on blockchain and participants on the blockchain do not face the usual T+2 or T+3 settlement cycles when trading BondbloX.By changing the order flows, order matching processes and allowing BondbloX to trade electronically on an exchange model, we have a great efficiency advantage over the current human-dependent over-the-counter model. All these cost savings translate into better prices and lower fees.<h4>Converting Bonds to BondbloX (and back to bonds)</h4>The BondbloX Exchange, like any other exchange, lists eligible instruments that can be traded on it. The curation of the bond universe is jointly performed by the exchange, its members and market makers, to carefully bring diversification opportunities to investors in terms of industry, tenor, ratings, and also a decent yield pick-up.For any listed BondbloX, investors may deposit with the exchange the Underlying Bond. This will be custodised and safeguarded by one of our Designated Custodians, Citibank N.A., or The Northern Trust Company. Once deposited, the equivalent holdings will be converted to BondbloX and credited to the sender’s BondbloX account, making it available to trade.BondbloX is also dual-fungible, i.e. conversion back to the Underlying Bond is also possible. Investors holding sufficient BondbloX holdings meeting the minimum denomination may choose to convert their BondbloX into Underlying Bonds and have it sent back to their own custodians.<h4>Record of Ownership of BondbloX</h4>Ownership of BondbloX is recorded on blockchain and the blockchain is maintained by multiple parties (including our Designated Custodians) each deploying nodes to run consensus that together share the same data.&nbsp;The debentures register maintained on blockchain provides the definitive record of BondbloX ownership. Blockchain maintains data in an immutable fashion where every transaction is recorded and cannot be altered without other parties knowing.

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An overview of what is BondbloX, how the BondbloX Bond exchange works, how bonds are converted to BondbloX and how the record of ownership of BondbloX is done. 

How it Works

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This article was originally published on&nbsp;<a href="https://www.hyperledger.org/learn/publications/bondevalue-case-study">Hyperledger</a>.As many industries struggled to find their footing amid the aggressive headwinds caused by the COVID-19 pandemic, the global bond market has managed to thrive.With near-zero interest rates implemented worldwide to ease the financial burdens caused by the coronavirus, the demand for bonds soared with global bond issuances increasing 16% in 2020, according to <a href="https://www.spglobal.com/ratings/en/research/articles/201026-credit-trends-global-financing-conditions-bond-issuance-is-expected-to-finish-2020-up-16-and-decline-in-20-11708610#:~:text=Global%20new%20bond%20issuance%20through,the%20same%20period%20in%202019.">S&amp;P Global</a>. By the third quarter of 2020, the <a href="https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/">International Capital Market Association</a> valued the international bond market at a whopping $128.3 trillion.But for those interested in investing in international bonds, the bond markets in Asia and Europe are particularly hard to break into for two reasons: high investment thresholds and lack of electronic infrastructure.In the international bond markets, the minimum investment is $200,000. “This makes it inaccessible for even fairly wealthy people,” says Rajaram Kannan, co-founder and CTO of <a href="https://bondevalue.com/">BondEvalue</a>, a Singapore-based fintech company that focuses on Asian bond markets. Typically, only those who have $5 million or above can afford to diversify their portfolio, and they pour about one-third of their wealth into bonds.But there are roughly 500 million people who are categorized as “HENRY”-s, or high earners not rich yet, who have assets that range from $100,000 to $1 million. This new class of investors is eager to expand their portfolio, yet they find the bond market impenetrable because of the high barrier to entry. “As a result, the liquidity in the bond markets is not even comparable to where the other capital markets are,” says Kannan. “The opportunity for growth is immense.”Even when investors have the means to invest in the bond market, managing bonds can also be a challenge. “One of the pain points in the bond markets is that the trading still happens over phone calls,” explains Kannan. “If you’re a bond investor who wants to buy or sell bonds, you have to call up your relationship manager in your bank or brokerage and go from there. The workflows are not entirely electronic.” Another pain point in the bond market is the extra costs that accrue because of the number of intermediaries involved between the end investor and the actual market. Everyone takes their cut.Until now! The team at BondEvalue recognized the need to upend the global bond market and create a modern infrastructure that makes managing bonds faster, more accessible, and more technologically advanced.“At BondEvalue, our vision was a solution where investors can actually trade bonds on the go from a brokerage app just like they can trade in equity,” says Kannan.In November 2019, BondEvalue launched the <a href="https://www.bondblox.com/">BondbloX Bond Exchange</a>, replacing the traditional over-the-counter trading experience with the world’s first fully regulated blockchain-based bond exchange that allows consumers to instantaneously and transparently trade bonds in smaller denominations of $1,000 each.Fully licensed and <a href="https://thefintechtimes.com/bondevalue-approved-by-monetary-authority-of-singapore-to-operate-blockchain-based-bond-exchange/">regulated by the Monetary Authority of Singapore</a> as a Recognized Market Operator, the BondbloX Bond Exchange operates under a strategic partnership with <a href="https://www.northerntrust.com/united-states/pr/2019/northern-trust-bondevalue-fractionalised-bond-ownership-blockchain">Northern Trust</a>, which is the global custodian partner for the exchange. Together they deliver integrated asset servicing and digital ownership of fractionalized fixed income bonds on a permissioned blockchain network. And from the beginning, the BondbloX Bond Exchange has attracted powerful players in the financial sphere who have signed on as launch partners such as <a href="https://bondevalue.com/news/the-bondblox-bond-exchange-goes-live/">UOB Kay Hian</a>, one of the largest brokerage firms in Singapore.“Asian bonds remain attractive to local and regional investors despite the global uncertainty and market downturn, and we are confident that this partnership will provide customers access to new sources of returns and opportunities to build a more diversified portfolio,” says Wilhem Lee, Senior Executive Director at UOB Kay Hian.“We believe BondbloX will be an industry game changer,” says BondEvalue founder and CEO Rahul Banerjee. “Once investors have experienced BondbloX, they will take to online bond trading with the same fervor they do for equity trading.”<h4>Powering the “Beast” with Hyperledger Sawtooth</h4>“Exchanges are like big tech animals,” says Kannan. “They are beasts.”The BondEvalue team realized the only way to feed this beast and build an innovative, groundbreaking global bond exchange would be to deploy <a href="https://www.hyperledger.org/use/sawtooth">Hyperledger Sawtooth</a>, the open-source blockchain framework hosted by the <a href="https://www.linuxfoundation.org/">Linux Foundation</a>. As a modular and flexible architecture, Hyperledger Sawtooth allows developers to separate the core system from the application domain so smart contracts can specify the business rules for applications without needing to know the underlying design of the core system.“We are in the space where we need to own and build our own tech,” says Kannan. “And we have to give credit to the Hyperledger community and to the Linux Foundation for creating this framework and making our solution possible.”Thanks to Sawtooth’s model, which uses a single node type, “the deployment is fairly simple. Even if somebody doesn’t host a node, it’s quite easy for anyone to sign and submit their transactions,” says Kannan. “If a bank already has a trading app and wants to connect to the BondbloX Bond Exchange, it is relatively easy using contemporary REST or Websocket APIs.”Sawtooth also has rich support for standard and custom events, which helped to develop the distributed apps using an event-driven framework. Further, the permissioning framework was a great fit for creating a broad but closed network of approved participants.Finally, the Practical Byzantine Fault Tolerance is “the perfect consensus” for the BondbloX Bond Exchange. “The reason for using blockchain is to create a trusted network, and we wanted the right protocol that allows for that,” says Kannan.A Sawtooth PBFT network is permissioned and only an administrator can add or remove nodes. This Hyperledger solution also offers a non-forking ledger consensus, which was a key factor in building the exchange. “We can’t tell people that their trade succeeded and then come back after 10 confirmations and say, ‘Oops, sorry, it didn’t work,'” says Kannan. “We needed a framework where when it’s committed, it’s done.”As the BondbloX exchange continues to evolve, the team at BondEvalue remains committed to developing Sawtooth along with Hyperledger’s open source community. “We are looking at how we can contribute back. We have, in fact, made a couple of contributions that are in the process of being assessed by the community,” says Kannan. “We want to add value to the project.”<h4>How it Works: Lower Minimums, Higher Liquidity</h4>The building blocks of the BondbloX Bond Exchange are the BondbloX themselves.Using depository receipts as a model, traditional bonds are brought into the BondbloX Bond Exchange through designated market makers, member participants, or their end individual clients from the secondary market. A designated custodian on the exchange (in this case, Northern Trust) confirms receipt of the underlying bond into the blockchain, which then triggers the bond to be divided into fractionalized BondbloX worth $1,000 each and backed one-to-one on the blockchain.“When a $200,000 bond comes in, the member receives $200,000 in BondbloX which is fractionalized into 200 BondbloX of $1,000 each and can be traded on the BondbloX Bond Exchange,” explains Kannan.With the blockchain infrastructure, settlement on the BondbloX Bond Exchange is nearly instantaneous, occurring on a T+0 basis. So instead of waiting for the normal two-day settlement cycle for traditional bond transactions, BondbloX trades are final within seconds, reducing counterparty settlement risks for investors.However, members who trade in BondbloX are not necessarily locked into the exchange. If a better opportunity in the secondary market arises, the BondbloX are “dual fungible.” Members can request via the custodian to withdraw the BondbloX from the exchange and deliver an OTC bond to a desired venue, which in turn reduces the quantity of BondbloX available to trade on the exchange. “It’s important that members feel that they’re able to take whatever investment opportunities are available to them,” says Kannan.Ultimately, BondEvalue is confident that the best opportunity is to stay within the BondbloX Bond Exchange. “We believe as an exchange, because you’re able to sell at lower minimums, you’ll actually have a much more liquid market that more investors will be capable of investing and buying in,” says Kannan.<h4>Collaboration and Configuration</h4>On the backend, “our governance model is collaborative,” says Kannan.But there are strict rules of engagement for partners who are hosting nodes on the network. While BondEvalue is responsible for most of the work behind updating the nodes with new software, the governing council meets regularly to review upcoming releases and determine a date that is mutually beneficial so that all members can prepare for the updates.“The main challenge is that each release has to be synchronized. Since we use all the nodes, they need to have the exact same software and the exact same version of the transaction process for the system to work as designed,” says Kannan. “If a partner hosting a node doesn’t upgrade, then they will go off chain.”For the frontend, the BondbloX Bond Exchange is a cloud-native application hosted on AWS and accessible via distributed apps on the web. “Because of the event-driven framework that Sawtooth supports, we were able to create a completely asynchronous cloud-native environment that provides the same experience for investors and members that they are accustomed to when trading other exchange-based securities,” says Kannan.To do so, the BondbloX app leverages IoT technology. “We integrated an IoT core solution so that we treat your browser like an IoT device that can deliver real-time notifications,” says Kannan.To avoid committing personally identifiable information on the blockchain, the team also implemented an external database so that personalized user and client information sit outside the network while a pseudo-anonymized identifier is leveraged on the exchange.“Within the blockchain, we had to make it really efficient for the transactions we process or the smart contracts we run, but outside the chain we can query in a really rich format” says Kannan. “So, you’re known by an anonymized ID in the blockchain. But then we merge that data with your real identity in the external database, and that information shows up in our app, which delivers a first-class user experience.”The BondbloX exchange is regulated by the Monetary Authority of Singapore (MAS). After less than a year in the MAS regulatory sandbox — a construct in Singapore where fintech companies test their innovative financial service solutions in the marketplace but under regulatory scrutiny — BondEvalue’s blockchain-based bond exchange graduated after successfully concluding the proof of technology and business model in October 2020.“BondbloX is the latest example of a groundbreaking application of blockchain technology in the capital markets enabled by experimentation in the MAS regulatory sandbox,” says Sopnendu Mohanty, chief fintech officer of the Monetary Authority of Singapore. “We are excited to see productionalization of blockchain in the bond trading market and look forward to great adoption in transforming financial services.”&nbsp;<img src="/uploads/Fractionalising_bonds_on_blockchain_diagram_f7f2f95a0e.jpg" alt=""><h4>The Future of Financial Inclusion</h4>When the BondEvalue team first introduced the BondbloX Bond Exchange, troubleshooting was at the forefront of their concerns.“My biggest worry was what if, what if, what if …” says Kannan. “Today we have gone through all the scenarios and we know what to do if there are issues. We know what those issues are, and we know that they’re not going to bring us down.”So, what’s next? Scaling the BondbloX exchange.BondEvalue continues to engage more member participants such as Taurus Wealth Advisors, the leading fee-based, multi-family wealth management firm in Singapore, and Amstel, an institutional fixed-income broker with operations across Asia and Europe. BondEvalue is also expanding its footprint with a joint venture partnership in Mexico. The company’s goal is to empower a more diverse pool of investors and introduce them to institutional-grade opportunities in the bond market through its cutting-edge blockchain solution.“We are excited to be working with BondEvalue to support a blockchain application that will broaden financial inclusion by opening up institutional bond markets to more investor types,” says Justin Chapman, global head of Market Advocacy &amp; Innovation Research at Northern Trust.“Our vision is to have over 25 million people in Asia invest in bonds in the next five years, from 500,000 individuals currently,” says Banerjee. “This is no small ambition, but we are hopeful as we have seen millions of people forced by COVID-19 lockdowns going online in the last six months for their everyday transactions.”With the continued expansion of the BondbloX Bond Exchange, says Banerjee, “our vision of extending bond trading from Wall Street to Main Street is becoming a reality.”&nbsp;<img src="/uploads/BIFT_and_Hyperledger_Sawtooth_diagram_aa786ba3f5.jpg" alt=""><h4>About Hyperledger</h4>Hyperledger is an open source collaborative effort created to advance cross-industry blockchain technologies. It is a global collaboration including leaders in finance, banking, Internet of Things, supply chains, manufacturing and Technology. The Linux Foundation hosts Hyperledger under the foundation. To learn more, visit <a href="https://www.hyperledger.org">https://www.hyperledger.org</a>&nbsp;

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How BondEvalue Launched the World’s First Fractional Bond Exchange with Hyperledger Sawtooth

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Let’s just say it – bond markets are weird! Everyone involved knows it. In good times, its time-honoured rules, traditions and structure work reasonably well. They work exceptionally well for its middlemen and don’t serve the remaining members of the “exclusive” club too badly.In bad times, like in 2008 and 2020, bond markets are the first to need government help. While equity, commodity and even the oil market have been volatile in the past month, they have managed to find an even keel without external intervention. Central banks are forced to intervene to save the corporate bond market, despite all its players being among society’s most privileged. Their hundreds of billions of dollars’ worth of intervention says something about the vital importance of the corporate bond market. While the importance of the corporate bond market is well discussed, what is omitted is why bond markets seize up so quickly, and how we can avoid another giant bailout next time.Bond and credit markets are the lifeblood of a functioning capitalistic society. Yet, bonds are accessible only to society’s wealthiest because of the individual bond certificate’s high minimum denomination – generally USD 200,000 or its equivalent in other local currencies. Even weirder is the fact that one can trade in bonds only through the trading desks of financial institutions. There are very few established, transparent exchanges or trading venues for bonds where investors can trade transparently.Let’s digest these two points slowly and understand how the bond market is still stuck in the middle ages while the equity, FX and all other major markets have become fully electronified. But before that, a quick recap of what happened in the bond markets for the last few weeks. Bond prices fell across the board until the Fed announced desperate stimulus measures, which included direct buying of corporate bonds, Bond prices have been relatively stable since then.<h4>Sellers can’t Sell, Buyers can’t Buy</h4>“I was worth double-digit millions of dollars, and now I am under severe pressure from my private bankers to post margins. I have only two bank accounts and all that I have is in them, investments, savings, everything.”&nbsp;“My banker said he could sell at 94, he came back an hour later and asked if 84 is OK?”“I wanted to sell my **MCO bond fund but I got a bid that was 10 points lower than its mark. I thought I would rotate out and buy equities, so the loss was bearable. But my “sell” trade did not go through.”“We will make a market if you insist, but you won’t like the numbers”“Exim bank was marked at 102 a couple of weeks ago and now it is suddenly at 79. I told my bank that I would like to buy some; haven’t heard back from them.”“I tried to buy bonds every day last week and kept increasing my bid by 1 point every day. Hardly got anything.”“I thought I was under-leveraged until the bank changed its advanced rate from 70% to 35%. Instead of having “dry-powder”, I am at the brink of a margin call”The comments above indicate a lot of anguish among bond owners and those who wished to buy into the market opportunity. As a collective market, we had both buyers and sellers, but the market was lacking the mechanism to match them.These issues don’t exist in the equity market. As an example, HSBC shares may have gyrated up and down, but everyone knew where they were trading, exact to the second decimal place. Every buy or sell order was passed onto the exchange where the stock trades. Exchanges have clear rule books, processes and surveillance to ensure that the market operates efficiently, which led to higher volumes. Exchanges are the only way to structurally fix the bond markets.<figure class="image"><img src="/uploads/HSBC_Stock_Price_and_Vols_da4c16e61f.png" alt=""></figure><h4><img src="/uploads/HSBC_Stock_Price_and_Vols_2fc60d8784.png" alt="">Stuck in the Past with OTC</h4>In contrast to how exchanges work, the corporate bond market is still almost entirely phone based or over-the-counter (OTC). Investors call their relationship manager to sell a bond, who in turn calls an investment counsellor, who in turn calls the internal bond execution desk, and then the order goes to the street which has zero risk appetite. The search then begins to find a buyer who wishes to by the exact same bond in the same quantity.Until the global financial crisis of 2009, bond dealers had significant appetite to hold bonds, so when the incoming phone call from an end-client was received the dealer could make him a price and buy or sell the bond. Today dealers hold negligible amount of inventory, and this is a reason why the crises is potentially even graver than the previous one.The graph below shows how corporate debt holdings among primary dealers in the US have dropped over the years indicating this lack of risk appetite.<img src="/uploads/US_Primary_Dealer_Holdings_of_Corp_Bonds_5906f18a5f.png" alt=""><img src="/uploads/US_Primary_Dealer_Holdings_of_Corp_Bonds_884825ade1.png" alt="">There is a parlour game called Telephonie or <a href="https://en.wikipedia.org/wiki/Chinese_whispers">Chinese Whispers</a> that is played with hilarious results. When the markets are stable, everyone is calm and somehow the market functions. But in a crisis, the sequential nature of phone calls clogs everything up. Investors faced with a very-short window to fill margin requirements rush to sell in what appears to be a one-sided market. The next day with brighter prospects there is a rush to buy. This type of a <a href="https://sloanreview.mit.edu/article/the-bullwhip-effect-in-supply-chains/">bullwhip effect</a> is mitigated in stocks due to them being traded on an exchange where everyone has a “direct” view of what is transacting.By moving to exchanges, we will have other advantages too. The settlement cycle will speed up from 48 hours currently, holders of securities will be known and most importantly, prices will be transparent and so will the mark-to-market.&nbsp;Every buy or sell order will be visible to the entire market, hence giving it the maximum chance of getting executed.The naysayers will dig out arguments centred around the fact that there are too many bonds in the world and not all of them trade every day. In a world where General Motors is making ventilators and the movements of each individual on the planet are being monitored in real time, the tech challenges around making bonds tradable on exchanges, while not trivial, are solvable. Perhaps the solution lies in starting with the largest issuers and most liquid bonds. One tech advancement that can play a crucial role is Distributed Ledger Technology or blockchain. Since the bond market is global and trades globally as one, this no longer nascent technology is the way forward.<h4>High Minimum Denominations Restrict Access</h4>Next, let us look at the issue of minimum investment (or denominations). Barring the Berkshire Hathaway A share that is currently trading at $274,000 for a single share, most shares’ prices are kept at lower levels via stock splits initiated by companies’ CFOs as it increases liquidity in the company’s shares. Recently there is a trend to have fractional shares as well, with the mighty Charles Schwab launching the <a href="https://www.cnbc.com/2019/10/22/schwab-fractional-investing-sets-a-new-standard-for-the-industry.html">service</a>.The majority of the world’s bonds trade with a minimum denomination of $200,000, putting it out of reach of the vast majority of the world. Last week, Standard Chartered bank issued a bond that pays a coupon of 4.644%. However, you needed to have a minimum of $200,000 to participate in the bond issuance. In comparison, if you walked into the Standard Chartered bank branch to deposit your savings, you will get a near zero deposit rate.&nbsp;While the risk profile of the two instruments is different due to the long tenor of the bond, the large ticket size prevent investors who understand the risk from participating in it. Interestingly one can buy equity quite easily which by definition is a riskier asset class.In an uncertain world, the need of the hour is to have diversified portfolios which a simple investing mantra that almost all investors understand. But this can’t be practiced in the bond market because of the denomination issue. Asset managers do provide diversification but can charge anywhere from upwards of 1% in fees. In the current low interest rate environment, fees of 1%+ eat up a significant proportion of the total return for a bond fund.While there is no substitute for good advice, appropriateness and investor education, the industry does need to move to smaller ticket sizes. This will involve getting rid of the centuries old tradition where bonds were issued by kings in Europe to their barons and other nobility to finance the kingdom.&nbsp;Fractional bonds will allow the “not so wealthy” to invest like the wealthy.The <a href="https://archive.schillerinstitute.com/fid_91-96/954_Gallagher_Venice_rig.html">plague of 1345</a> caused the end of the Lombard banking system. Let us hope that the COVID-19 crisis spurs us on to replace the plumbing in the bond market so that central banks never need to bail it out ever again.<h4>Additional Reading</h4>1) Bloomberg: <a href="https://www.bloomberg.com/news/articles/2020-03-29/trading-european-debt-amid-virus-turmoil-depends-on-who-you-know">Trading European Debt Amid Virus Turmoil Depends on Who You Know</a> 2) Financial Times: <a href="https://ftalphaville.ft.com/2020/03/25/1585143723000/When-central-banks-take-over-securities-markets/">When central banks take over securities markets</a> 3) Economist: <a href="https://www.economist.com/leaders/2017/04/20/corporate-bond-markets-need-a-reboot">Corporate bond markets need a reboot</a> 4) Economist: <a href="https://www.economist.com/finance-and-economics/2020/03/05/electronic-platforms-are-challenging-bond-broker-dealers">Electronic Platforms are challenging bond broker dealers</a>

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