DLT in Capital Markets: A Strategic Assessment of Opportunities and Risks – A Report by the Global Financial Markets Association

The Global Financial Markets Association (GFMA) has released a comprehensive report examining the opportunities and challenges presented by Distributed Ledger Technology (DLT), including DLT-based Securities and associated activities across the securities lifecycle.

The report, developed in collaboration with GFMA member firms, incorporates the insights of industry practitioners at the forefront of DLT use cases research and application worldwide.

The report indicates that innovation in distributed computing and data encryption, embodied in DLT and the emerging digital asset ecosystem, could have a fundamental impact on the next major wave of capital market developments. The technology is seen as a potential catalyst for operational efficiency, cost savings, product innovation, broader market access, and new liquidity pools.

The current focus is ensuring that DLT applications meet regulatory requirements and mitigate any potential risks associated with the use of this new technology. Several jurisdictions are introducing sandboxes or pilot regimes to facilitate firms’ experimentation with and issuance of DLT-based products. Live use cases in capital markets, profiled in the report, are already beginning to capitalize on opportunities and deliver benefits to clients while remaining compliant with existing rules and regulations.

The emergence of DLT and the digital asset ecosystem represents a critical juncture. As regulators worldwide formulate policy to govern the ecosystem, it is crucial to ensure stability and protections for market participants in digital asset markets. The report aims to guide policymakers and market participants in identifying regulatory, supervisory, and risk management practices that not only offer stability and protections but also permit the industry and economy to leverage the benefits of DLT.

Despite the growing momentum behind DLT use cases, there is yet to be widespread adoption of DLT-based Securities. DLT-based issuances have been largely experimental, and liquidity in Primary and Secondary Markets remains significantly below the levels expected in the long term. The report warns that siloed approaches and diverging regulatory regimes could hinder progress towards a broader, coordinated DLT-based ecosystem.

To foster confidence among industry participants, the GFMA underscores the need for cross-industry consensus. This consensus should aim to promote development around specific use cases and encourage stakeholders to proactively shape the emerging ecosystem in its foundational phase of development. In response, the GFMA and its members have proposed five calls to action to overcome existing adoption barriers and further the development of DLT-based capital markets. These calls to action are targeted at industry participants and regulators alike.


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Bank of England Tests DLT Settlement System

The Bank of England and the Bank for International Settlements (BIS) Innovation Hub London Center have successfully tested a distributed ledger technology-powered settlements system between the institutions. As a result, the Bank of England will use the insights from this project in its real-time gross settlement (RTGS) system.

The joint pilot project, called Project Meridian, was recently documented in a report published by BIS on April 19. The 44-page document highlighted the successful synchronization of distributed ledger technology (DLT) between the banks for the purchase of houses in Wales and England.

This synchronization network allowed for the transmission of messages between the synchronization network and RTGS system using APIs, providing a generic interface that could be “relatively easily” extended to other asset classes, such as foreign exchange. By extending this system to other asset classes, it could significantly reduce the time, costs, and risks of transactions.

The Bank of England and BIS have been exploring the potential of DLT for financial settlements and transaction processing for several years. They have been working on multiple projects, including a cross-border payments project called Project Stella, which was completed in 2019.

The Bank of England has also been developing its own RTGS system, which is set to be launched in 2022. The new system will be built on modern technology and will replace the current system, which has been in operation for almost 20 years. The integration of DLT technology into the new RTGS system could further enhance its efficiency and security.

DLT technology, also known as blockchain, has the potential to revolutionize the financial industry. Its decentralized and transparent nature allows for secure, efficient, and cost-effective transactions, without the need for intermediaries. It has the potential to streamline the financial system and reduce the risk of fraud and errors.

The successful completion of Project Meridian is a significant milestone in the exploration of DLT technology in financial settlements. The potential for extending the system to other asset classes could significantly enhance the efficiency and security of financial transactions, which would benefit the entire industry.

In conclusion, the Bank of England and BIS Innovation Hub London Center have successfully tested a DLT-powered settlements system through Project Meridian. The synchronization network allowed for the transmission of messages between the synchronization network and RTGS system using APIs, which could be extended to other asset classes, reducing the time, costs, and risks of transactions. This is a significant milestone in the exploration of DLT technology in financial settlements and could enhance the efficiency and security of financial transactions in the future.


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HSBC to Issue Digital Bonds to Institutional Investors through Tokenization Platform

Multinational banking giant HSBC has revealed plans to issue digital bonds to corporates and financial institutions through its new proprietary tokenization platform called HSBC Orion.

By harnessing the power of distributed ledger technology (DLT), HSBC Orion will enable token-based transactions. As a result, attain digital delivery versus payment.


Per the report:

“The platform leverages blockchain technology as a ‘single source of truth,’ whereby asset and settlement tokens sit natively and securely on the platform’s ledger.”

Therefore, HSBC Orion is eyeing the issuance of the first-ever GBP tokenized bond in accordance with Luxembourg law.


Once rolled out, HSBC Orion will be expanded to other asset classes and locations.


John O’Neill, HSBC’s global head of digital asset strategy, markets, and securities services, pointed out:

“Digital assets are a fast-growing part of financial markets. Our clients are demanding solutions that can deliver the benefits of tokenization within a trusted and secure environment.”

Since tokenization presents opportunities for fixed income like improved operational performance and faster processing, HSBC Orion is deemed a stepping stone towards this objective.


O’Neill added:

“We are excited to be meeting this growing need by launching HSBC Orion, our strategic platform for tokenized assets. We plan to use HSBC Orion to facilitate further digital bond issuance and expand its usage to other products in 2023.”

On his part, Zhu Kuang Lee noted that HSBC Orion would offer a secure and trusted backbone when it comes to the issuance of tokenized bonds.


The chief digital, data, and innovation officer at HSBC Securities Services, said:

“We believe that tokenization solutions complement and expand HSBC’s best-in-class custody and asset servicing capabilities, and we plan to widen our support for digital assets in 2023.”

Meanwhile, HSBC recently conducted a blockchain-based trade finance transaction between SAIC Motor, a Chinese car manufacturer, and Taajeer Group, the exclusive agent for MG cars in Saudi Arabia, Blockchain.News reported.  


HSBC acknowledged the use of DLT had the potential to revamp the trade finance sector by slashing transaction times to less than 24 hours from the present five to ten days.

Image source: Shutterstock


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Fed and MIT’s CBDC research: Distributed Ledger tech has ‘downsides’

Theoretical research into a Central Bank Digital Currency (CBDC) in the U.S. has found that distributed ledger architecture has “downsides.”

The Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology published their findings of their initial research into a CBDC on Feb 3.

The research project, dubbed “Project Hamilton,” tested a “hypothetical general purpose CBDC” using two potential models.

The first one processed transactions through “ordering server” distributed ledger technology (DLT), which organized the validated transactions into blocks to create an ordered transaction history.

The researchers were able to use this architecture to complete over 99% of transactions in under two seconds and the majority of transactions in under 0.7 seconds.

However, the ordering server resulted in a number of issues due to being run under the control of a single actor, the researchers concluding that “a distributed ledger architecture has downsides. “

“For example, it creates performance bottlenecks, and requires the central transaction processor to maintain transaction history, which one of our designs does not, resulting in significantly improved transaction throughput scalability properties.”

They added that despite using ideas from blockchain technology, a “distributed ledger operating under the jurisdiction of different actors was not needed.”

The second architecture processed transactions in parallel on multiple computers, rather than relying on a single ordering server to prevent double spends. The researchers wrote that although “this results in superior scalability,” it did not “materialize an ordered history for all transactions.”

It demonstrated throughput of 1.7 million transactions per second with 99% of transactions durably completing in under a second, and the majority of transactions completing in under half a second.

Related: Fed issues discussion paper on benefits and risks of a digital dollar

Project Hamilton was first announced in 2020 to explore the use of existing and new technologies to build and test a hypothetical digital currency platform. The code is the first contribution to OpenCBDC, a project maintained by MIT which will serve as a platform for further CBDC research.

Boston Fed Executive Vice President and Interim Chief Operating Officer Jim Cunha said that the project illustrates that it is “critical” for change makers to not only understand how emerging technologies could support a potential CBDC, but also what challenges remain.

“This collaboration between MIT and our technologists has created a scalable CBDC research model that allows us to learn more about these technologies and the choices that should be considered when designing a CBDC.”

The director of the Digital Currency Initiative at MIT Neha Narula said that “there are still many remaining challenges in determining whether or how to adopt a central bank payment system for the United States.”


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SBI Ripple Asia Powers Cambodia’s First Cross-Border Remittance Corridor Using RippleNet

SBI Ripple Asia, a joint venture between SBI Holdings and Ripple, will be facilitating Cambodia’s first international remittance service using blockchain technology.

In collaboration with SBI LY Hour Bank, which is a subsidiary of SBI Holdings, SBI Ripple Asia will enable money transfers between Cambodia and Vietnam to be faster, cheaper, and more convenient using RippleNet, Ripple’s distributed ledger-based payments network. RippleNet is a financial service offered by Ripple that utilizes XRP to settle real-time transactions between currencies in an efficient, frictionless, and convenient manner. On behalf of SBI Group, Yoshitaka Kitao, the bank’s CEO, said:

“We will pursue synergies to the maximum in the future by generously providing new technologies such as distributed ledger technology (DLT) promoted by the SBI Group to companies inside and outside the group, especially in the rapidly developing Asian region. We would like to lead the globalization of finance utilizing cutting-edge technology, such as by leading to the development of a money transfer service that incorporates crypto assets.”

Through the partnership, a payments corridor between Cambodian and Vietnam banks will be enabled. Payment services will be offered at low fees and will be settled in real-time leveraging blockchain-based technology.

Despite Ripple’s setbacks with the US Securities and Exchange Commission, who alleges that XRP is operating as an unregulated security in the United States, SBI Group has been a firm ally of Ripple, even when partners such as MoneyGram have put a hold on their collaboration with the fintech startup. Thanks to this, XRP adoption has significantly grown in Asia amid the lawsuit Ripple faces in the US.

According to a recent earning report released by Ripple, the company managed to increase its XRP sales by 97% in the first quarter of 2021. This translates to sales of $150.34 million in XRP for Q1 of 2021, as compared to net sales of $76.27 million in Q4 of 2020. Needless to say, XRP has continued to thrive despite the legal battle Ripple is currently fighting.

After the court case is resolved, there may even be a possibility of Ripple taking the company public. Recently, CEO of SBI Group Kitao publicly expressed that he wished to see the company go public after the court case with the SEC has been settled. This aligns with CEO of Ripple Brad Garlinghouse’s visions for the company, as he had previously stated during interviews that Ripple aspires to conduct an initial public offering (IPO) in the future.

Image source: Shutterstock


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Germany: IOTA and Ethereum-Based Solution Used to Issue Coronavirus Digital Certificates

The German district of Altötting is piloting a digital proof of vaccination project using technology offered by a Cologne-based firm, UBIRCH, becoming the first in the country, news sources on Jan 21 reveals.

UBIRCH‘s IOTA and Ethereum-based Solution Used in Altötting

Beginning this week, the district allows people who have been vaccinated against the zoonotic virus to verify their identity using the UBIRCH solution digitally. The system that can work in various blockchains, including IOTA, will enable people to verify their coronavirus vaccination status on the go, going a long way as part of contagion control.

UBIRCH will issue digital certificates, supplementing physical issuance, only after Pfizer’s second vaccination has been made. For concurrence, the digital certificate will contain all information needed for verification. The certificate will be stored in a tamper-proof blockchain. To access this certificate, a private key will be required, typical in blockchain-based setups.

Presently, vaccinated people will receive a printed code, which can be read out later from mobile. However, these will be saved straight in the mobile phones in days ahead, allowing for better and more convenient proof. Additionally, the technology company will provide communal data centers.

By leveraging the default encryption and anonymity of leading blockchain networks, the security of these digital certificates is guaranteed.

The German district is presently piloting the project, spearheading the fight against a virus that may force an extended lockdown if the infection count rate doesn’t fall. For their effort, the district is setting the pace, allowing others to participate in their collective efforts to control the spread of the COVID-19 virus.

According to health authorities, the highly contagious virus continues to mutate. The integration of technology comes in handy to properly arrest its spread, especially for countries that have posted early success like Israel.

Solving Problems Using Blockchain

While there was no specific mention of UBIRCH preferred blockchain, there is a trail of evidence that the Cologne-based company often leverages distributed ledger technologies.

In an interview, Matthias Jugel, the CTO of UBIRCH, said they had initially tried out Bitcoin and Ethereum networks.

However, they were put off by their high transaction fees and scalability challenges. They continue using mainstream blockchains, aggregating data to Ethereum, Ethereum Classic, and IOTA networks.

As BTCManager reported, a coronavirus test center at one of Germany’s largest airports uses IOTA to secure travelers’ data.

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University of Glasgow Employs Blockchain Technology to Combat Circulation of Fake Whisky

A research center from the University of Glasgow has partnered with Everledger, a blockchain startup, to ensure transparency in the whisky industry and combat fakes, using blockchain technology.

Blockchain Technology to Safeguard Rare Whiskies

According to an official publication on Friday (Dec. 18), the University of Glasgow’s Scottish Universities Environment Research Center (SUERC) and Everledger signed an agreement, which will see the use of blockchain to track the provenance of rare whiskies.

SUERC researchers use radiocarbon dating, which helps to check the actual age of the world’s rarest whiskies, which can single out counterfeits. A SUERC research back in 2018 revealed that 21 out of 55 rare scotch bottles tested were either fake, or not distilled in the year indicated on the bottle.

Also, the value of collectible single malt Scotch whiskies got to £57.7m (($78 million) in 2018. However, SUERC researchers estimate that about 40 percent of such whiskies in circulation may be counterfeit.

Meanwhile, in response to customers who called for an additional layer of security to guard against tampering, SUERC will employ Everledger’s blockchain-powered Near Field Communication (NFC) tags. The anti-tamper bottle tags will not only help to trace the origin of the bottle and the supply chain, but would also enhance the whisky’s value.

Commenting on the partnership, Dr Elaine Dunbar, research scientist at SUERC, said:

“One aspect of the process that has eluded us is securing a permanent digital record of a whisky’s origin and age. We are therefore absolutely delighted to establish a partnership with Everledger who will provide a lasting seal and a digital record of the whisky and details of its radiocarbon analysis.”

Dr. Dunbar added that the use of distributed ledger technology (DLT) will reduce the circulation of fake vintage whiskies and also boost customers’ confidence in their whiskies.

Everledger has also been helping different companies to combat counterfeit diamonds and other luxury items. As reported by BTCManager in August, the blockchain firm partnered with Chinese e-commerce giant JD.com, to develop a blockchain technology solution to help with the authentication of diamonds.

Back in 2019, Russia-based diamond producing company ALROSA, and Everledger launched a DLT platform to bring transparency to the diamond supply chain.

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StanChart and UnionBank of the Philippines Collaborate on PoC of $187 Million Blockchain-Powered Bond

The UnionBank of the Philippines and Standard Chartered (StanChart) have created a proof of concept required in the issuance of a blockchain-powered retail bond. The blockchain platform intended for bond tokenization was co-developed by SC Ventures, StanChart’s innovation and ventures arm, and UnionBank.

Standard Chartered blockchain bond

Bond tokenization

The tokenized retail bond worth $187 million (9 billion pesos) was mirrored on the blockchain platform and involved a three and 5.25-year dual issuance. According to the announcement:

“Orders received were tokenized and stayed within existing retail bond guidelines. The tokens issued mirrored the traditional transaction but were not allocated directly to investors.” 

Ephyro Luis Amatong, a commissioner at the Philippines’ Securities and Exchange Commission, noted that the result could be instrumental in measuring the effectiveness and efficiency of tokenization and the distributed ledger technology (DLT).  

Addressing the needs of retail investors

According to Aaron Gwak, StanChart’s head of capital markets, the use of blockchain technology, tokenization, and DLT could be a game-changer in making the bond market accessible to retail investors. He acknowledged:

“The bond infrastructure around the world has been designed primarily for institutional investors and involves a number of intermediaries to buy and subsequently trade bonds, making it less accessible to retail investors.”

Jose Hilado, UnionBank’s CFO added:

“The marriage of a digital order-taking platform and backend infrastructure driven by tokens is the future of retail bonds. We are keen to see the day when investors can buy and sell bonds, even on the secondary markets, at a click of a button on their phones.”

In September, Thailand’s central bank deployed a blockchain-enabled platform in the issuance of government bonds to improve investor’s buying experience, boost operational efficiency, and minimize costs. 

In other news, StanChart CEO Bill Winters recently disclosed that the widespread creation and mass adoption of digital currencies was absolutely inevitable. 

Image source: Shutterstock


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