Australian Bond Exchange Holdings Limited (ASX:ABE) has announced it has successfully completed the first near real-time settlement of a corporate bond trade, applying its expertise and proprietary settlement technology to the eAUD Central Bank Digital Currency (CBDC) Ethereum ledger.
The settlement was conducted in the purpose-built “RBA CBDC Wallet” production environment, in collaboration with the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC), as part of the regulator’s ongoing focus on a digital currency.
Working to develop a revolutionary, almost instantaneous bond settlement system, the test demonstrated a seamless navigation of the corporate bond settlement end-to-end process. This can dramatically transform the standard T+2 settlement process if the CBDC Pilot was to be adopted by global Central Banks.
“Australian Bond Exchange is excited about the participation in the CBDC Transactional Pilot with the Corporate Bond Atomic Settlement use case”, said ABE Managing Director and CEO Bradley McCosker. “The DFCRC and RBA have presented a Central Bank Digital Currency to industry and ABE is excited to showcase the adaptability of securities trading such as corporate bonds to the digital currency space.”
In November 2022, Australian Bond Exchange was chosen as one of 15 use cases, from 140 industry submissions. Since then, Australian Bond Exchange applied its proprietary trade and settlement technology to the real-time CBDC technology as part of the DFCRC Pilot Program.
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The DFCRC, launched in August last year, is a $180 million research program that pioneers research and commercialisation for the emerging digital finance sector, bringing together industry, research, and regulatory stakeholders.
From 2 days to almost instantaneous
T+2 settlement, where T is the date of trade, and + 2 is the number of business days traders must wait until assets and money changes hands, is currently the standard process for settling bonds and other securities.
“The current T+2 framework can cause significant confusion for banks, regulators and financial advisers trying to keep a clean record of thousands of security trades and cause major upheaval if one of the parties goes bankrupt as occurred during the GFC. It’s also a headache for investors in planning cash flows, as their funds are locked in their trading account to ensure settlement,” Mr McCosker said.
“The successful T+0 trial highlights the immediate potential for improvement over current settlement practices. The existing T+2 settlement system, while the optimum solution when it was created decades ago, is now subject to complications leading to trades failing, operational costs and credit risks that can now be effectively eliminated.
“Real time CBDC corporate bond settlements using the Australian Bond Exchange’s technology will remove the need for the T+2 settlement timing. Financial institutions would no longer need to worry about contra settlements, or the infection of failed settlements with other trades. With the introduction of this new blockchain technology led by Australian Bond Exchange, the tedious waiting game of settling bond trades could be over.”
