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BondbloX and Emirates NBD have entered into a strategic partnership to offer Lombard lending to BondbloX clients and a wider range of asset classes.<ul><li>Leverage for Bond portfolios at attractive rates</li><li>Access to other asset classed beyond bonds</li><li>Continue to enjoy seamless access to the BondbloX platform to trade global bonds.</li><li>Low transaction fees on Bond trades 5 cents for treasuries and 10 to 20 cents for corporate bonds based on AUM</li><li>Round the clock electronic trading.</li></ul>Emirates NBD Singapore, the Singapore branch of Emirates NBD, a leading banking group in the Middle East, North Africa, and Türkiye (MENAT) region and BondbloX, a leading Singapore FinTech firm and the world’s first fractional bond exchange, have announced a strategic partnership aimed at enhancing the BondbloX’s value proposition as they grow their international base of clients. Emirates NBD Singapore will partner with BondbloX to open the corridor for Lombard lending solutions and offer a wider range of asset classes to BondbloX’s clients. The partnership enables international bond investors on BondbloX’s platform to access liquidity without selling their investments, supporting more efficient portfolio management.Through this collaboration, BondbloX clients will be able to access Lombard lending – a type of credit secured by liquid assets that allows investors to draw funds while retaining their holdings – from Emirates NBD Singapore. Given that BondbloX operates as a bonds exchange platform, this partnership fills an important gap by giving its clients access to financing that was previously unavailable while keeping transaction fees low for investors.For Emirates NBD Singapore, in turn, this provides an opportunity to widen its client base and lending book. The initiative also builds on Emirates NBD’s existing referral model, under which clients from the UAE and international jurisdictions are introduced to the Singapore branch, to leverage Wealth Management capabilities.Vanessa Leung, CEO of Emirates NBD Singapore, said: “Our collaboration with BondbloX is a great example of B2B partnerships that have the potential to create win-win situations. It enables clients to avail of credit facilities, enables BondbloX to plug a gap in its value proposition and helps us expand our reach. By offering Lombard lending to BondbloX clients, we are not only enhancing their investment capabilities but also growing our presence in key markets, particularly by serving the Middle Eastern client base. This partnership reinforces Singapore’s role as a crucial financial hub and highlights the increasing synergy between the UAE and Singapore.”Both the UAE and Singapore have established themselves as key destinations for multinational corporations, high-net-worth individuals and investment firms seeking new opportunities. They act as vital conduits to regions experiencing accelerated growth, driven by shifts in global trade and capital flows, solidifying their positions as central players in international commerce.Dr. Rahul Banerjee, CEO of BondbloX, added: "BondbloX Bond Exchange, regulated by the Monetary Authority of Singapore, is dedicated to democratising access to bond markets. This collaboration with Emirates NBD Singapore allows us to further enhance our offering by providing our clients with much-needed leverage facilities, thereby making fractional bond investing even more attractive and flexible. It is a significant step forward in our mission to create a more inclusive and efficient bond market.”&nbsp;BondbloX clients should reach out to their sales person or send a message to <a href="mailto:bbxsales@bondblox.com">bbxsales@bondblox.com</a> &nbsp;

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BondbloX and Emirates NBD have entered into a strategic partnership to offer Lombard lending to BondbloX clients and a wider range of asset classes. 

Emirates NBD Singapore and BondbloX collaborate to enhance proposition for bond investors

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Highlights:<ul><li>BondbloX becomes a designated digital asset platform under MAS’s Global‑Asia Digital Bond Grant Scheme (G‑ADBGS)</li><li>Enables issuers of qualifying digital bonds to access subsidies of up to SGD 450,000</li><li>Solidifies BondbloX’s Bond Exchange’s leadership in digital bond innovation</li></ul>&nbsp;Singapore, June 17, 2025 – BondbloX Pte Ltd (“BondbloX”), Recognized Market Operator (“RMO”) &nbsp;of Singapore’s first DLT based bond exchange, today announced its formal approval as a&nbsp;designated digital asset platform&nbsp;under the Monetary Authority of Singapore’s Global‑Asia Digital Bond Grant Scheme (“G‑ADBGS”). [<a href="https://www.mas.gov.sg/schemes-and-initiatives/global-asia-digital-bond-grant-scheme">1</a>]Launched by MAS on January 15, 2025, the G‑ADBGS aims to&nbsp;catalyse the issuance and broader market adoption of digital bonds in Singapore and across Asia, offering subsidies covering 30 % of eligible issuance expenses—capped at SGD 250,000 for SGD 100 million-sized bonds and SGD 450,000 for digitally native bonds of SGD 200 million or more, with the scheme valid through December 31, 2029.&nbsp;Strategic Milestone for Digital Bond MarketAs a designated platform, BondbloX now empowers corporate and financial institution issuers with an Asian nexus to list&nbsp;digital bonds&nbsp;on the&nbsp;platform.&nbsp; It will work with Singapore licensed Global Joint-lead managers to enable these issuances to come to the market efficiently.BondbloX is a pioneer in the tokenized bond market, having brought over 426 issuances, 46 jursidictions to market since the first transaction in August 2020. Linklaters, a leading global law firm, advised BondbloX on the inaugural issuance program and will continue to work on new issuances on the platform, in both tokenized and natively digital formats.The BBX&nbsp;platform&nbsp;is unique that it allows efficient and regular secondary trading of these digital bonds and full life cycle management.&nbsp; Both cash and bonds are on the platform hence trades can match atomically.&nbsp; The tokenized bonds have a legal classification of debentures and have unique ISINs.&nbsp;Dr. Rahul Banerjee, CEO of BondbloX, said: “This designation underscores our commitment to democratizing access to high‑quality digital bond infrastructure in Asia. Investors will adopt new technology when it is both useful and easy to use. Our market infrastructure will allow investors to trade digital bonds with the same ease as traditional bonds, plus accrue additional benefits of price discovery, speed and reduced counter party risk.”Jon Horan, Managing Partner, Linklaters, remarked: “We continue to assist issuers and banks to issue digital bonds across the region. With the work done with BondbloX over the years, it is now easier for bonds to be traded uniformly across both traditional and digital formats in a legally consistent manner. We look forward to further supporting Asia digital bond innovation and adoption.”&nbsp;What This Means for Issuers and InvestorsIssuers&nbsp;operating from Asia can choose BondbloX to deliver digital bond issues with:<ul><li>Seamless distributed ledger infrastructure</li><li>Access to G‑ADBGS co‑funding up to SGD 450,000</li><li>Compliance with listing requirements</li><li>Use of the multiple traditional lead managers via a neutral market infrastructure</li></ul>Investors&nbsp;benefit from:<ul><li>Fractionalised bond exposure from SGD 1,000</li><li>Transparent order‑book pricing, instant settlement, and zero counterparty risk</li><li>Rich data insights on bond yields, spreads, and performance</li></ul>&nbsp;Next StepsBondbloX is ready to onboard issuers and intermediaries guiding them through issuance mechanics, compliance checklists, arranger onboarding, and grant application timelines. Issuers keen on exploring opportunities should contact BondbloX’s Capital Markets team at&nbsp;<a href="mailto:listing@bondblox.com">bondblox@bondblox.com</a>.&nbsp;Media Contact BondbloX Pte Ltd Geoff Logan, COOEmail:&nbsp;<a href="mailto:geoff.logan@bondblox.com">geoff.logan@bondblox.com</a>

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BondbloX Pte Ltd (“BondbloX”), Recognized Market Operator (“RMO”)  of Singapore’s first DLT based bond exchange, on June 17, 2025, announced its formal approval as a designated digital asset platform under the Monetary Authority of Singapore’s Global‑Asia Digital Bond Grant Scheme (“G‑ADBGS”).

BondbloX Approved as Designated Digital Asset Platform by MAS

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BondbloX Pte Ltd (BondbloX), the world’s first fractional bond exchange, and TSFC Securities Public Company Limited (TSFC), a premier securities finance corporation (SFC) in Thailand, have signed a Memorandum of Understanding (MoU) to explore the potential for a strategic partnership aimed at investigating the expansion of BondbloX activities within the Thai capital&nbsp;market.&nbsp;The MoU, signed by Dr. Rahul Banerjee, Co-Founder &amp; Chief Executive Officer of BondbloX, and Mr. Udomkarn Udomsab, President of TSFC, establishes a framework for&nbsp;mutual evaluation of a feasible structure&nbsp;that could potentially provide Thai investors with enhanced access to overseas debt securities through brokers and asset management channels.BondbloX’s platform offers fractional and full bond trading with price transparency, accessible via user-friendly web and mobile interfaces. TSFC Securities intends to leverage its extensive network of partners in Thailand and in-depth knowledge of the Thai securities market, while BondbloX aims to contribute its experience in the fixed income market and electronic distribution.TSFC Securities will also share its knowledge, expertise, and experiences on relevant onshore laws, regulatory frameworks, best practices, and industry standards in Thailand.“Mr. Rahul Banerjee, Co-Founder / CEO of BondbloX stated,&nbsp;‘We are excited to explore the potential of working with TSFC Securities to understand how BondbloX’s platform could potentially be integrated into the Thai capital market, particularly within the broker and asset management sectors. This MOU represents a step towards investigating innovative solutions for Thai investors.’”“Mr. Udomkarn Udomsab, President of TSFC, stated, ‘This MoU reflects our commitment to exploring potential opportunities that could enhance the Thai investment landscape and provide our client base with increased access to global investment opportunities. We look forward to working with BondbloX to explore the possibilities.’'

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BondbloX Pte Ltd (BondbloX), the world’s first fractional bond exchange, and TSFC Securities Public Company Limited (TSFC), a premier securities finance corporation (SFC) in Thailand, have signed a Memorandum of Understanding (MoU) to explore the potential for a strategic partnership aimed at investigating the expansion of BondbloX activities within the Thai capital market.

BondbloX Partners with TSFC to Explore the Feasibility of the Digital Bond Market in Thailand

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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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This article is about the similarity between wine and bonds — outwardly two very different things! I've been wanting to write this article for many many years, typically around Christmas time in December as the bond market starts to wind down for the year and the season for drinking wine kicks off in ernest. One of the motivations for writing this article is a coincidence that the BondbloX Bond Exchange (BBX) shares its name with the Berry Brothers secondary wine exchange which is also called BBX. Before I go any further, I do want to say that this particular article is written mostly for merriment, mirth and good cheer rather than anything particularly special.For both wine and bonds, geography is very important. There are some people who would only like to drink wine from France or Australia; some others are even more particular and will be partial to a sub-region like Burgundy or Brunello. Likewise in bonds, in my experience, there's a lot of home bias: a preference for bonds from the country that you live in or belong to or are most familiar with. At BondbloX, we often joke that if you show us a person's bond portfolio, we can tell you his life history. In both wine and bonds, a lot of debate comes up about “the best value” and that changes from time to time— new world vs. old world; emerging markets vs. developed markets.Something that doesn't come to mind as a similarity in both these asset classes (yes, I will certainly call wine an asset class) is term structure or vintage. Funnily enough, it works in opposite ways for wine and bonds. In wine, the year of production i.e. the “year of issuance” is important whereas for bonds, it's the maturity that takes precedence. Maturity has a totally different meaning for wine!&nbsp;A key similarity is the excitement created from the new issue process in bonds or the En primeur for wine. The intermediaries in both industries, négociants for wine and dealers for bonds, will analyse the new vintage or the new issue, enticing buyers, espousing better value than anything else available in the secondary market. Both merchants use similar adjectives such as scarcity, appreciation potential, and bring out fine points to show better relative value, both against the same producer (issuer) and against other similar producers (issuers). Phrases like “cheapest first growth in the market”, “some new issue concession on the table”, or “35bps pick-up vs. fair value at IPG” are bandied about. Another identical term in both is ‘allocations’. This particular word is very specific and makes the buyer feel special. Relationships are carefully maintained, and skilled negociants will always claim ties with great vineyards going back generations. Once the precious allocations are obtained, expectations of price appreciation follow—almost immediately in the case of bonds, and over the years in the case of wine. Medieval urban legend has it that an English gentleman would always buy two cases of fine claret en premeur, and upon maturity (of the wine), sell one case and enjoy the other for free. I too emulated them by purchasing two cases of the 2001 vintage, my older daughter's birth year, during the wine boom in the early 2010s. Sadly, they are still below purchase price well over a decade later. The good part about bonds is that the decent ones will always trend towards the par value as you approach maturity!The next interesting similarity is about tiers: We have Tier-I and Tier-II bonds, some readers may remember the time that we had Tier-III bonds as well. Similar tiers also exist in wine. Emperor Napoleon III in 1855 created a five Tier classification of the wines from Bordeaux based on the price, reputation and quality; this tiering still holds true and is almost unchanged, with Château Mouton Rothschild being promoted to the top echelon in 1973. In Burgundy’s hilly terrain, the finest parcels lie at the top of the hill as Grand Crus, followed by Premier Crus on the side slopes just below, and village wines at the foothills. As you can see, within the same village, a seniority exists akin to a perpetual bond, Tier- II bond, and a senior bond. We know that while the name is the same on the bottle or the bond, the price &amp; quality are very very different. All Meursaults, Corton, Margaux are not the same — there is a perceptible difference between the legendary first growth Chateau Margaux, classified Premier Grand Cru Classé and the other wines from the Appellation of Margaux. Likewise, the buyers of the Credit-Suisse’s bonds regrettably found out in 2023, that all their various classes of bonds were not the same. While the AT1 holders were written off, the others got paid out in full.&nbsp;Continuing our journey, once you have obtained the allocation for the wine and the bond, you settle into a rather long wait for maturity. The aforesaid Chateau Margaux, produced in 2020, has a drinking window from 2033 to 2075! If you drink it earlier, the fine wine police can arrest you for wine-fanticide. The key thing to do during this long wait is to have it stored perfectly. In my personal opinion, how wine is stored is super important. Wine is a food product, and even brief periods of temperature fluctuation can irreparably spoil it, stripping away many of its fine notes and, in extreme cases, turning it into vinegar. Now the best place to store it is inside a hill, in a cool place where the temperature remains naturally stable. How you store or safekeep bonds is also very critical —the two main features to look for are segregation and bankruptcy remoteness. If your bonds are custodized with a large global custodian, they are safe and you should have peace of mind. Once assured of safety, cost becomes another concern. You have to pay an annual cost, which may be a small fee and in some cases,a not-so-small fee. At BondbloX, we decided to waive the custody fee for any client with more than USD 5 million in assets with us. For wine, these costs can be a dollar or two per year, so they do add up over the decades.Next I want to turn towards the nature of secondary trading of these assets. For both wine and bonds, the same case or ISIN can be quoted at two different prices (albeit not very substantially different). You may have a negociant or a dealer who sells you a case of wine a couple of hundred dollars more than another dealer. You have the option to buy wine from local shops or from global suppliers. If you go out and ask three or four different brokers, you'll get two or three different prices. If you're sure about the provenance of the wine, just buy from the cheapest. The provenance does matter — for instance, I never buy wine from expats leaving a country and selling their collection at cheap prices, as I cannot be certain how the wine has been stored. In bonds, as long as you're buying from a regulated player, it's really the price that matters the most. I think managing to buy at a good price saves you a lot of money. In both these industries, having a good relationship with the dealer is useful - probably more for bonds than for wine! This is very unlike the equity market where everyone gets the same prices via stock exchanges. If I want to buy a stock of Tesla or HDFC Bank or Apple, my relationship with my broker doesn't matter as I will always get the same price.In recent times, both of these industries are changing with the advent of electronification. The old image of a wine merchant having great relationships with the best producers in Europe is slowly giving way to vineyards (particularly in the US and the new world) having direct relationships with their retail clients and a number of very reputable wine websites that are able to supply wine globally. Likewise for bonds, from a very phone driven market, electronic market places like BondbloX and a few others are allowing increasingly direct and efficient access to bonds globally.There is one last connection and a more personal connection between wines and bonds. BondbloX is the world's first fractional bond exchange. Our clients often ask if we have fractionalized all bonds in the world and I say no! Today, you can buy about two or three thousand bonds in minimum denominations of USD 1,000 on our exchange. The analogy I use is that if you go to a large wine bar or restaurant, they may have many hundreds of wines by the bottle, but only a dozen available by the glass.I sign off with the wish that both your wine and your bond investments give you decades of pleasure, in both possession and consumption, and that you continue to find great value in BBX, the BondbloX Bond Exchange!&nbsp;Rahul BanerjeeFounder &amp; CEO, BondbloX

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This article is about the similarity between wine and bonds — outwardly two very different things! I've been wanting to write this article for many many years, typically around Christmas time in December as the bond market starts to wind down for the year and the season for drinking wine kicks off in ernest. One of the motivations for writing this article is a coincidence that the BondbloX Bond Exchange (BBX) shares its name with the Berry Brothers secondary wine exchange which is also called BBX. I do want to say that this particular article is written mostly for merriment, mirth and good cheer rather than anything particularly special.

The Uncanny Resemblance Between Wine and Bonds - Two Sides of the Same Coin

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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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