Italy’s Cassa Depositi e Prestiti Spa (CDP) has made a significant leap in the financial sector by issuing a €25 million digital bond on the Polygon public blockchain. This issuance was underwritten exclusively by Intesa Sanpaolo, acting as the sole investor. The initiative forms part of the European Central Bank’s (ECB’s) wholesale Distributed Ledger Technology (DLT) settlement trials, where payments were executed in central bank money using the Bank of Italy’s TIPS Hash Link solution. This solution bridges the DLT and the TARGET2 system for wholesale payments.
CDP, a development bank primarily owned by Italy’s Ministry of Economy and Finance, has taken an innovative step in capital markets by combining blockchain technology with traditional finance. This digital bond issuance not only represents a pioneering use of blockchain but also marks a new era in the issuance and settlement of bonds.
Implementation of Italy’s ‘Fintech Decree’ Law
A notable aspect of this digital bond issuance is its alignment with Italy’s ‘Fintech decree’ law. This law, Italy’s version of the DLT Pilot Regime, allows for DLT issuances outside the Pilot Regime, provided certain conditions are met. One such condition is the maintenance of a Digital Register by a Digital Register Manager authorized by Consob, Italy’s securities regulator. This register logs the real names and details of the securities’ owners, ensuring transparency and security.
Fabio Massoli, CDP’s Director of Administration, Finance, Control, and Sustainability, indicated that this transaction represents a major step for CDP in capital market innovation. He emphasized the pioneering use of blockchain technology for bond issues, highlighting the promotion of a new market ecosystem and the implementation of an innovative, efficient, and secure market infrastructure. This, he noted, would provide added value to issuers and investors, creating new opportunities for various market players, including small and medium-sized enterprises (SMEs).
Comparison with Germany’s eWpG Law
The Digital Register concept in Italy’s Fintech Decree bears similarities to Germany’s eWpG law. Both frameworks support direct securities issuances and transactions without the need for central securities depositories (CSDs) or bank intermediaries. However, Italy’s approach appears more advanced as it permits issuers to serve as their own Digital Register Managers. In this case, CDP assumed the role of both the Market DLT Operator and the Consob-authorized Digital Register Manager, demonstrating the flexibility and efficiency of Italy’s regulatory framework.
Massimo Mocio, Deputy Chief and Head of Global Banking & Markets at Intesa Sanpaolo’s IMI CIB Division, expressed satisfaction with being the first in Italy, alongside CDP, to execute an operation intended to set a benchmark for future issuers within a new legal and regulatory landscape.
ECB Wholesale Settlement Trials
The ECB’s wholesale settlement trials aim to test the interoperability between DLT networks and central bank money, including both conventional currency and Central Bank Digital Currency (CBDC). Most transactions under these trials involve delivery versus payment, ensuring secure and efficient settlement processes. CDP noted that the settlement for its digital bond was completed on the same day, reflecting the efficiency of the blockchain-based system.
Rating and Term of the Digital Bond
The digital bond issued by CDP has a term of four months and has received ratings from major credit rating agencies. It was rated A-2 by S&P, F-2 by Fitch, and S-2 by Scope. These ratings indicate a high level of creditworthiness, further enhancing the bond’s appeal to investors.
Through this digital bond issuance, CDP has demonstrated a forward-thinking approach, leveraging blockchain technology to enhance the efficiency, security, and accessibility of bond markets. This initiative not only positions Italy at the forefront of financial innovation but also sets a precedent for other countries and institutions to follow. The successful integration of blockchain and central bank money in bond issuance showcases the potential of DLT in transforming traditional financial systems.
