European Investment Bank (EIB) Issues Digital Bond in Pound Sterling

The European Investment Bank (EIB) priced its first ever £50 million digital bond using a combination of private and public blockchains operated and accessed via HSBC Orion – the bank’s tokenization platform.

It follows the recently adopted Luxembourg legal framework tailored “to allow for the issuance, transfer, and custody of dematerialized securities on distributed ledger technology (DLT) infrastructure.”

The encrypted private blockchain “serves as the record of legal ownership of the digital bonds and provides an operational framework to manage the floating rate instrument and its lifecycle events.”

The public blockchain is “used for information purposes and provides increased transparency to investors and the market as to holdings of the digital bonds on an anonymized basis.”

The dematerialized digital bonds will be “held in digital securities accounts kept on HSBC Orion.”

The BNP Paribas Securities Services business in Luxembourg, RBC and HSBC will “act as custodians for existing clients who invest in this digital bond.”

The pioneering vision of digital bonds intends “to bring benefits to market participants by reducing costs, improving efficiency and allowing for real-time data synchronisation across participants.”

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The architecture — distributed between BNP Paribas, HSBC and RBC Capital Markets — sees HSBC acting “as central account keeper recording transactions in the digital bonds on the secure HSBC Orion platform.”

EIB was advised in this transaction “by Clifford Chance while the joint lead managers were advised by Allen & Overy.”

EIB Vice-President Ricardo Mourinho Felix said:

“The EIB’s role as the EU public policy bank goes beyond acting as an ordinary bank. We promote innovative and disruptive solutions, as demonstrated 15 years ago with the very first green bond issuance. The time has come for further innovation in the financial sector, and we are pleased to issue the first digital bond in pound sterling on a private and public blockchain with the support of our counterparts. This new financial tool will provide additional capital flow that the EIB will invest in projects with global impact.”

Benjamin de Forton, Debt Capital Markets Sovereign, Supranational & Agencies, EMEA, BNP Paribas added:

“After the successful euro-denominated trades, the EIB is now launching the world’s first ever digital bond denominated in pound sterling. This bond is testing the potential of tokenisation on a private ledger for safety and efficiency combined with disclosure on a public ledger for transparency. We are honoured to partner with the EIB in exploring the usage of tokenisation in capital markets.”

As noted in the update, blockchain is “a digital and distributed ledger of transactions using advanced cryptographic techniques and the contribution of a network of participants.”

The participants jointly “validate the transactions in blocks in an ordered and immutable sequence (hence the name ‘blockchain’).”

This combination of features primarily aims “to provide enhanced security and operational efficiency without resorting to a centralized registry to keep track of bondholders.”

For more details on this update, check here.

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