Nomura Research Institute has settled a Japanese digital bond using delivery versus payment (DVP) for the first time.
Settlement risk is a key concern for those trading digital securities in the domestic market, NRI said. It intends for the new settlement scheme to reduce this risk and further expand engagement with digital bond trading.
The Nomura Research Institute 15th Unsecured Bond (with inter-bond pari passu clause and transfer restrictions) is a three billion yen bond with a five-year maturity. It has a 1.483% per annum coupon, and has been rated AA- by the Rating and Investment Information company.
DVP is used for many bonds in the country under Japan Securities Depository Center (JASDEC) rules, but as digital bonds are not handled by the centre the method has not been made available.
In this case, smart contract capabilities from ibet for Fin blockchain were used to facilitate DVP. Information on the trading of digital bonds was reconciled with bank remittance information from the trade’s parties.“This demonstrated that DVP can be offered as a standard settlement method for trading in security tokens,” Nomura stated.
This trade was settled on a T+1 basis, further reducing risk, the institute said. Publicly-traded bonds in Japan are currently settled on a T+4 or later schedule, in line with JASDEC rules. However, as digital bonds do not come under JASDEC’s remit, the process can be shortened.
BOOSTRY, Nomura’s blockchain tokenisation business, provided the digital platform for the project.
On the project, it commented: “The need for secure DVP has been a major issue with security tokens, and the project established that this can be achieved through a practical mechanism that does not rely on specialised solutions such as stablecoins. We believe that this will help drive significant advancements for the industry.”
NRI is also testing a new digital currency, DCJPY, as a replacement fiat currency for digital bond trading. It believes that this could improve the efficiency and reliability of the securities settlement process.
The first Japanese digital bond was issued by NRI in 2020, since which public digital bond issuance in the country has reached more than 150 billion yen.
On this latest project, NRI commented: “This project to procure funding using digital bonds is one of our novel initiatives and we believe it to be an important step toward a larger market for digital securities.”
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