Doha Bank, which offers digital finance services, has successfully issued a digitally native note (“DNN”) in the amount of $150 million and settled it the same day (T+0) through Euroclear’s regulated DLT platform. The trade represents an example of tokenized debt being successfully introduced into capital markets.
The floating rate DNN was created and was traded on Euroclear’s Digital Financial Market Infrastructure (“D-FMI”), while the arrangement and coordination for the deal were provided by Standard Chartered Bank, which acted as Global Coordinator and Arranger. This combination of a regulated Central Securities Depository and a permissioned Distributed Ledger Technology platform, a major global banking institution arranging the transaction, and an LSE (a regulator of the London Stock Exchange) listing is an approach that many market participants have been looking for for some time.
What is the significance of T+0 settlement? Traditional bond transactions have multiple post-trade processes, including allocation, clearing, custody update(s), and a multi-day cross-border settlement. A permissioned distributed ledger allows Euroclear’s D-FMI to issue, distribute, and settle bonds almost in real time. This procedure will reduce settlement-related risk(s) and increase operational efficiency(s) by reducing the time that capital would be held in a settlement window. As a result, issuers will be able to create more effective and easier-to-maintain records, reconcile faster, and develop new types of investing and automated compliance products.
The T+0 transaction also signifies a larger shift within the region; financial institutions within the Gulf region have been working with tokenization for years; however, this transaction is different due to its size and regulatory environment. The T+0 transaction is a USD bond issued by a regulated bank, cleared on a regulated distributed ledger technology platform, and listed on a major exchange. This move provides a mechanism for conservative institutional investors to reduce their risk associated with adopting T+0 settlement technology and may pave the way for similar offerings throughout the Middle East and Asia.
In addition to the news coverage, this agreement addresses some of the practical market questions about how to issue digital securities at scale, how to custodialise these securities within the existing regulatory environment, and how to settle them using the existing bank and fund settlement processes. As evidenced by the DNN from Doha Bank, many market participants are increasingly saying “yes” to these questions. In addition, as more issuers and custodians adopt regulated Distributed Ledger Technology (DLT), tokenized debt may evolve within the next few years from being just niche experiments to becoming one of the main infrastructures to support the world’s fixed income markets. This technology provides a faster, more programmable, and importantly, interoperable way to access fixed income securities.
