One More Fintech Innovation—Fixed-Income Instruments to Be “Chained”

2020/09/08

As businesses adapt to a rapidly changing world, a blockchain-driven revolution in transaction logs is unstoppable. Recently, Taiwan Depository & Clearing Corporation (TDCC) has been preparing to launch an innovative blockchain-based service that helps dealers deliver trade confirmation and statement of bills and bonds. The new approach will overcome the over 30-year pain point of fixed-income instrument markets—the trouble of sending settlement documents by post or courier.

Under the current framework, dealers need to send documents, such as trade confirmation and settlement statement , to customers by post or courier. If the reverse repurchase agreements of bonds (repo trades) are prematurely terminated, dealers must retrieve the customers’ transaction certificate before they can move on to the next step of the settlement process. This repo procedure is labor intensive, and therefore decreases settlement efficiency.

The daily trading volume in the Taiwanese bond and bill market has exceeded NT$300 billion. TDCC is working with the Taiwan Securities Association (TSA) and Bills Finance Association of the Republic of China with the aim of introducing Fintech into the TDCC bond and bill management platform. This introduction marks the very first combination of blockchain, identity confirmation service (ICS), and e-signature. The technological innovation leverages collaborations that will allow dealers to more promptly submit trade confirmation statements. The counterparty can also check transaction status online at any time. What’s more, the whole process will be blockchain-based. Since blockchain is uniquely immutable and tamper-resistant, data will be securely transferred at all times and any data transfer will get recorded on the blockchain as digital evidence. The mechanism has significantly made the whole process more secure, transparent and efficient.

According to Victor Wang, TDCC Senior Vice President of the Fixed Income Services, TDCC has been digitally transforming its business over the past few years. Amid the Covid-19 crisis, TDCC is also working with Fintech to maximize market efficiency and minimize physical touch in brick-and-mortar institutions. The blockchain application demonstrates the innovation and open-mindedness that shape the trajectory of the digital ecosystem in the financial services sector. TDCC took the initiative and implemented blockchain technology in the over counter market where bills and bonds are traded. The new system will keep expanding the scope of services that support transactions among bond dealers, custodian banks, and bills dealers.

TDCC has already completed the program development and internal testing phases. The next step will be the soft launch for all the market participants in September, with the official launch following in Q4. This blockchain-based service symbolizes the marriage between Fintech and the bond/bill markets.