Switzerland-based multinational investment firm UBS AG becomes the first financial service provider to onboard a digital bond that is publicly traded and settled on both blockchain-based and traditional exchanges. Therefore, its investors can now access the hybrid digital bond on either a digital market or a traditional financial market.
The bank claims that digital bonds operate on the same instrument structure, legal status, and rating as a traditional UBS AG senior unsecured note.
According to an announcement made by UBS AG “Through this bond, UBS enables investors, regardless of whether they have the blockchain infrastructure, to invest in a digital bond. This removes a hurdle on the way to adopt new disruptive technology that can make issuing bonds faster, more efficient, and simpler.”
The inaugural senior unsecured digital bond is a 375 million Swiss franc-denominated three-year bond with a 2.33% coupon.
The settlement of the digital bond will be done via SIX Digital Exchange (SDX), a distributed ledger-based central securities depository (CSD) network. Therefore, the process will be conducted through atomic settlement technology that allows the instantaneous exchange of two linked assets.
Instant and Automatic Settlement of Digital Bonds
During this process, no central clearing counterparty will be needed as the exercise will be instant and automatic.
Investors get to automatically settle and clear the UBS digital bond on either SDX CSD directly or on SIX SIS, a private segment of the SIX Group which operates the central securities depository of the SIX Swiss Exchange and the SECOM electronic trading system.
Invariably, the hybrid digital bond will be listed at SDX Trading and SIX Swiss Exchange and will qualify for the Swiss Bond Index (SBI) plus all other UBS AG senior unsecured notes which are listed on SIX.
UBS Group Treasurer Beatriz Martin commented;
“We are proud to leverage distributed ledger technology to launch the inaugural UBS digital bond. This shows our commitment to support the development of new financial market infrastructure. UBS is committed to using technology not just as an enabler, but to making it a true differentiator for UBS.”
In other news, the Israeli Ministry of Finance Accountant General in collaboration with the Tel Aviv Stock Exchange (TASE) alongside Fireblock and VMware commenced the testing of a blockchain-backed platform for state digital bonds trading.