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CBA Executes First Ever Blockchain-based Government Bond

Reading Time: 2 minutes by on January 27, 2017 Finance, News, Tech
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Queensland Treasury Corporation (QTC), the Queensland’s central financing authority, will be using a prototype of The Commonwealth Bank of Australia’s (CBA) capital markets blockchain platform. The trial execution of a virtual “cryptobond,” the first such blockchain bond issued by a government entity, is not QTC’s first interaction with the CBA.

The QTC has already used this platform to do a plethora of investor related actions:

“According to CBA, the Queensland government’s central financing authority has already successfully used the bank’s distributed ledger to generate a bond tender, view investor bids in real time, finalize investment allocation, and instantly settle with investors.”

The “cryptobond” uses smart contract technology, with the ability to automatically pay coupons to current user when due. Since the bond is a prototype, however, it is not tradeable nor carries any debt obligation.

George Confos, executive general manager of Business & Corporate Finance at Commonwealth Bank, stated, “Our proof-of-concept demonstrates blockchain is capable of delivering efficiency to issuers, investors, and other market participants. Blockchain makes it possible to increase efficiency and transparency, which will redefine how capital markets operate.”

This transaction is also significant in the fact that it is the first trial of this permissioned blockchain platform for issuing bonds. Blockchain technology in the platform will allow settlement times to catch up to trading times, with trading on exchanges typically completing in milliseconds but “the clearing and settlement process can take between two and 30 days depending on what asset class you are trading.”

A final decision for the platform is due in the second half of 2017. The decision in the third or fourth quarter of 2017 will decide if this new platform will replace the dilapidated Clearing House Electronic Subregister System (CHESS) platform that the CBA have been using to clear and settle assets. 

In the meantime, the CBA still has work to do, finalizing the platform into an “industrial-strength solution” capable of handling workload it would be assuming from CHESS.

If coupled with the announcement from the Sydney Stock Exchange, where they are working on a project resulting in the immediate settlement of trades on the exchange, it could lead to the trading of assets in Australia to be one of the fastest, if not the leader, regarding total time for an asset exchange.

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