The transactions, which are the first of their kind, involved financial institutions and regulators from across Europe and underlined how blockchain technology can be used to enhance borrowers and asset managers’ liquidity, as global investors contend with liquidity crunches and money market turbulence.
In total, Rabobank’s pilot executed more than €40 million in notional, one-week maturity Euro Commercial Papers in EUR and GBP in a fixed and floating format, from the Dutch State Treasury Agency and Rabobank Treasury in the Netherlands and Erste Bank in Austria to UK-based asset manager Northern Trust Asset Management.
The transactions were executed, distributed and settled in under 30 minutes, as opposed to the standard two business days, providing close to real-time liquidity to Northern Trust Asset Management for publicly issued and traded debt securities on both primary and secondary markets. The securities were issued out of the existing CP and CD funding programmes of participating borrowers with assigned individual XS-ISIN.
The trade economics and settlement instructions were confirmed and matched in real-time using a private-permissioned ledger-based platform built by Rabobank and integrated into operational flows and legacy front-to-back risk systems. The securities were instantly issued in and settled against fiat cash on Euroclear Bank’s infrastructure and harmonized with the issuing and paying agent on their infrastructure, and soon the electronic trading venue of Tradeweb. The transactions reduced the execution, issuance cost and time, improved operational efficiencies and contributed to real-time trade supervisory.
European regulators, including The Netherlands Authority for Financial Markets (AFM), also had dedicated access to the blockchain, which allowed them to trace and track the pilot transactions in real-time, highlighting the potential for the technology to support regulatory efforts across financial markets.
The transactions were the continuation of pilot transactions executed by Rabobank in 2021 with NN Investment Partners and PGGM. Rabobank is now working on building the ecosystem and network effect with key institutional players.
Youssef el Mir, Global Head of Trading at Rabobank, said: “We believe the digitisation of money markets can enhance liquidity and transparency at a critical time for the asset management industry. Our 2021 pilot was all about proof of concept. These latest transactions, and the solution we’ve worked collaboratively to deliver, prove that blockchain technology can be smoothly and seamlessly integrated in financial institutions’ legacy systems with the right approach.
“As the top global money market dealer, we can now offer the security and operational efficiency of fast delivery versus payment settlement to borrowers and fixed income asset managers, helping them to standardise and better manage cash flow and portfolio risk.”
Roland van der Vorst, Global Head of Wholesale & Rural Innovation at Rabobank, said: “Blockchain’s reputation as a technology with legitimate applications for global financial markets has undoubtedly been shaken by the turmoil surrounding cryptocurrencies. The scale and success of our pilot, delivered in partnership with some of the biggest financial institutions in Europe, will hopefully help to address misconceptions and show the revolutionary impact innovation in this space can truly have.”
Philippe Verriest, Head of Innovation, Research and Development at Euroclear, said: “We are delighted to have worked on this truly innovative project with our industry partners. The pilot successfully resulted in a large reduction in ECP instrument issuance and settlement processing times while also providing near instantaneous liquidity to the issuer. Through our scalable infrastructure and network, we were able to jointly provide secure, real-time issuance and settlement of these instruments. In our role as a financial market infrastructure, we are here to support and collaborate with the market in the development of pioneering technologies that will drive real efficiencies.”
Dr Leonard Franken, Technology & Innovation at Autoriteit Financiële Markten (AFM), said: “These are exciting times, shared infrastructures as blockchain can bring great efficiency in the market and we are just at the beginning of exploring. Pilots like these bring a lot of knowledge and experience to all involved parties, also AFM, and feed the collective innovation capabilities”.