China Construction Bank, the world’s second-largest bank by assets, is cooperating with Malaysian and Singaporean partners to test blockchain technology for use in the bond market.
As previously reported, China Construction Bank’s branch in Labuan, Malaysia, had initially pursued a partnership with a Labuan-based fintech to issue what was hailed as prospectively the first-ever blockchain-based digital security to be issued by a Chinese financial institution.
CCB Labuan’s plan had been to use the Ethereum blockchain to issue bonds and raise up to $3 billion in total, starting with a tranche of $58 million, from both individuals and institutions.
Within days of the announcement, however, the bond issuance was delayed until further notice, and trading of the first tranche, in the form of tokenized certificates of deposits, did not go ahead on the Labuan-regulated Fusang Exchange.
On Dec. 3, a new announcement suggested that work on the blockchain-based issuance has not been suspended altogether, but that some of the key actors have changed. Malaysia’s national stock exchange, Bursa Malaysia and the Labuan Financial Exchange are both now involved, and there is no mention of Fusang Exchange.
Fusang notably supports cryptocurrency trading, so traders had been expected to be able to exchange Bitcoin (BTC) for U.S. dollars in order to purchase the bonds.
Instead of the Ethereum blockchain, a proof-of-concept for the bond is now being explored with STACS, a Singaporean fintech development firm that specializes in the use of blockchain technology in capital markets. STAC has developed a blockchain-based platform, dubbed Trident, and has been awarded a financial sector technology and innovation proof-of-concept grant from the Monetary Authority of Singapore.
Alongside CCB Labuan and Bursa Malaysia, other partners on the proof-of-concept include domestic regulators, the Labuan Financial Services Authority and Securities Commission of Malaysia, as well as two banks, CIMB Investment Bank Berhad, and Maybank Investment Bank Berhad, also known as Maybank. According to the announcement:
“Using […] Trident […] bond templates were mirrored onto smart contracts for rapid deployment, while operational workflows were streamlined to increase efficiency and flexibility in settlement cycles. Together with CCB Labuan, CIMB and Maybank, the [proof-of-concept] simulated several bond issuances which were all issued and managed on the STACS Blockchain.”
Those involved claim that this successful collaboration between private sector fintech firms, banks and regulators demonstrates the increased efficiency and transparency that blockchain technology can bring to the bond market. Further co-development of the technology for the next phases of the project is in the pipeline.