THE Singapore Exchange (SGX) announced Wednesday (Jun 1) that the central depository (CDP) has made available to market participants a blockchain-enabled bond issuance platform by Marketnode.

Through the digitalisation of manual processes in bond issuance and the full elimination of a paper trail, the platform enables debt issuers to shorten the settlement time for new-issue bond offerings to 2 days, instead of 5.

The shorter settlement time is in line with the typical settlement period for the secondary bond market. OCBC’s US$100 million Euro Commercial Paper issuance is the first transaction on the “direct-to-depository” platform, which connects debt issuers into SGX CDP.

OCBC joined Marketnode – a digital asset venture between SGX Group and Temasek – as a partner bank last December, and worked with SGX CDP and Marketnode on the maiden issuance. OCBC also acted as the sole dealer for the issuance on the platform.

Kenneth Lai, OCBC’s head of global treasury, said: “This latest automation and digitalisation across the entire bond lifecycle from issuance, clearing and settlement to asset servicing is a culmination of efforts and alignment of strategic direction from all involved parties to modernise existing processes.”

Lee Beng Hong, SGX’s head of fixed income, currencies and commodities, said: “The digitalisation of OCBC Bank’s bond issuance can act as a blueprint for us to operate Asia’s first digital bond infrastructure utility within a regulated securities depository, further strengthening Singapore’s position as a fixed-income hub with one-stop digital issuance for international issuers.”

At the World Forum of Central Depositories, taking place online this week, a panel addressed the challenges of creating a DLT market infrastructure – an exercise in which both ASX and SDX are well advanced.

Responding to a question on whether central bank digital currencies (CBDCs) are a necessary catalyst for the complete adoption of DLT in market infrastructure, Timothy Hogben, group executive, ASX, noted that having cash on the ledger enables participants to have transparency across securities and money, “which has been one of the challenges in achieving simultaneous DVP.” A CBDC would be a big help in that regard, he suggested.

Jens Hachmeister, managing director – issuer services & new digital markets, Deutsche Börse, agreed, though adding that CBDCs were only part of the solution. “We need a broad range of accepted payment solutions to enable DVP on-chain,” he said.

Head of legal and compliance at SDX, Immaculada Navas, pointed out that in SDX’s experience even if an asset is tokenised and asset-backed, banks sometimes have a requirement to be able to tokenise and detokenise in real time to ensure that a position does not remain in the system overnight. Having a CBDC on the platform eliminates the perceived risk of doing so, she suggested, regardless of the safety of the system itself.

A dissenting voice came from Angus Scott, co-founder and chief executive of Artclear, which is developing a digital market infrastructure for the art market. “Cash has a very much broader role in society, so saying cash over ledger for DVP is the tail wagging the dog,” he argued. “You can integrate things without having to actually create this new financial instrument called central bank digital currency, which opens a whole new can of worms.”

At the recent World Economic Forum in Davos, it was suggested by the Atlantic Council that 87 countries (representing over 90% of global GDP) are exploring a CBDC, up from 35 countries in May 2020. However, this is yet to translate to an increased rollout of launches. Nine have launched to date, the latest being Nigeria.

In April, the UK Treasury announced plans for a regulatory sandbox for financial market infrastructures using DLT to be operational by 2023.

The U.S. Securities and Exchange Commission (SEC) has approved the Securities Financing Transaction (SFT) clearing service proposal of the National Securities Clearing Corporation (NSCC), the equity clearing subsidiary of DTCC, to operate a central clearing and settlement infrastructure for overnight borrows and loans of equity securities.

The new NSCC SFT clearing service will support the central clearing of clients’ SFTs intermediated by sponsoring members or agent clearing members, as well as the central clearing of SFTs between NSCC full-service members.

The SFT Clearing Service will also allow lenders and borrowers to submit pre-established bilaterally-settled SFTs for clearing.

The SFT Clearing Service is designed to maximise capital efficiency and mitigate systemic risk by providing market participants with additional membership and cleared transaction opportunities.

The SFT Clearing Service provides members with the ability to recognise balance sheet offsets on novated SFTs, including those with third-party NSCC members and with their institutional clients.

Through novation to NSCC, members should benefit from lower capital charges on their SFTs than would otherwise be required if they engaged in the same activity outside of a central counterparty, says DTCC.

Lower balance sheet and capital constraints should allow NSCC members to experience increased lending and borrowing capacity. At the same time, agency lending disclosure reporting would no longer be applicable, DTCC adds.

DTCC is also working with FIS (Loanet) who has committed to collaborating with Broadridge and Provable Markets to ensure access and connectivity to the NSCC SFT clearing service for those members who may wish to continue to leverage FIS for their books and records processing and for the submission of Depository Trust Company deliver orders.

Laura Klimpel, general manager of fixed income clearing corporation and head of systemically important financial market utilities business development at DTCC, says: “We are pleased that the SEC has approved NSCC’s new SFT clearing service, which has the potential to significantly expand market access and liquidity while lowering overall systemic risk.

“A central clearing model has the potential to transform the securities lending market for the better, with benefits including freed up credit lines, new borrowing and lending opportunities for a wide range of counterparties, and balance sheet and capital optimisation.”

Klimpel adds: “We thank our partners for their contributions to the SFT clearing service and for helping us lay the groundwork for its upcoming launch.”

The European Securities and Markets Authority (ESMA) has postponed the application of the Central Securities Depository Regulation (CSDR) mandatory buy-in regime for another three years.

Market participants have conveyed concerns over “serious difficulties” to implement the mandatory buy-in regime on the scheduled date — which has been repeatedly postponed since 13 September 2020.

These difficulties referred to “the absence of clarity regarding some open questions necessary for the implementation of the buy-in requirements”.

This is in addition to “the uncertainty as to whether the European Commission’s legislative proposals on amending regulation of the European Parliament and of the Council would include amendments to the mandatory buy-in rules and the extent of any potential amendments.”

The buy-in rules refer to a mandatory obligation for trading parties to execute buy-ins against counterparties who fail to settle their trades within a required period.

The postponement is expected to allow the European Commission and the co-legislators additional time to determine the best way forward to improve settlement efficiency while avoiding potential duplicative implementation costs for market participants in case extensive changes would be made to the existing buy-in measures.

A final report by the authority has seen amendments to the regulatory technical standards (RTS) on settlement discipline based on the expected changes to the CSDR buy-in regime presented in the commission’s legislative proposal for the CSDR Review and amendments to the Distributed Ledger Technology Pilot Regulation.

This draft RTS has been sent to the European Commission for endorsement in the form of a Commission Delegated Regulation.

Following the endorsement by the European Commission, the Commission Delegated Regulation will then be subject to the non-objection of the European Parliament and of the Council.

Responding to the announcement, Daniel Carpenter, CEO of Meritsoft, a Cognizant company, says: “The latest announcement on buy-ins will be welcome clarification for the industry. By pushing out the implementation for three years, planned resources can be allocated to ensuring automation of penalties handling, processing the increasing partial settlements needs, performing daily and monthly reconciliations, and then handling claims management activities.

"In conjunction, firms can work towards digitising and centralising their settlement fails data which can be utilised for predictive analytics purposes, leveraging AI and ML. All of the above will give market participants a strong footing from which to tackle the buy-in rules, should they ultimately be introduced.”

A lack of clear standards and definitions, as well as the potential for greenwashing, are the two primary industry barriers preventing financial advisers from promoting ESG investing further to their clients, according to FE fundinfo’s new Financial Adviser Survey.

The 2022 survey, which was completed by more than 200 UK-based financial advisers towards the end of 2021, finds that 56 per cent of advisers believe a lack of clarity regarding what ESG investing actually encompasses is preventing its further adoption.

Similarly, 55 per cent say fears of greenwashing discourage advisers from promoting ESG funds.

This is despite both an increasing client interest and a higher range of ESG investment options available, with 72 per cent of respondents now offering some form of ESG proposition to clients, marking a 7 per cent increase compared to the previous year.

Commenting on the survey results, Christoph Dreher, head of ESG product group at FE fundinfo, says: “It is clear that while interest in ESG investing is at an all time high and, as a topic, is fuelling many conversations between adviser and client, the industry needs to do more to shape understanding and provide relevant information.

“While the industry has taken great strides in recent years, client and adviser understanding of ESG investing is preventing greater adoption of ESG investing, and the market needs to provide more education and information that is accessible and easy to understand in order to support this interest.”

This has caused many advisers to develop their own methods to source the information they need for their clients, says FE fundinfo, with 49 per cent of respondents using multiple third-party sources for their ESG information.

In addition, 21 per cent use information provided by fund groups, and just 2 per cent employ national ecolabels.

Dreher adds: “On the surface, it is great that advisers are conducting their own research into ESG investing and analysing a number of different sources, but perhaps the bigger story is that advisers are having to go to numerous sources to find the information they need.

“In such a fast-moving industry, where regulations and their requirements are constantly changing, it is of course understandable that there is a gap between the information fund managers are required to provide from a compliance point of view, and for advisers who are presented with reams of information which might not necessarily be of value for their clients.”

The 2022 survey concludes on a positive note, with 66 per cent of advisers now investing more client money into ESG propositions compared to last year, while 33 per cent of advisers consider themselves “active” promoters of ESG funds — a 6 per cent increase from the previous year.