Rabobank Trials Blockchain Solution to Issue Commercial Paper
Rabobank employed blockchain to release €40 million in euro commercial paper with a one-week maturity over 19 trial trades. In response to increasing interest rates, blockchain is gaining prominence to provide quicker settlement times, hence facilitating intraday trades and enhancing liquidity.
Dutch State Treasury, Rabobank Treasury, and Austria’s Erste Bank released the commercial paper priced in euros and pounds, with Northern Trust Asset Management as the bidder. In lieu of two days, the issue, circulation, and settlement required less than thirty minutes and were less expensive than the typical method. Both the main and secondary markets were facilitated with liquidity.
“Blockchain’s credibility as a path breaking innovation with genuine uses for international financial markets has been irreparably damaged by the instability around cryptocurrencies,” stated Roland van der Vorst, international chief of wholesale and regional technology at Rabobank.
“The magnitude and performance of our pilot, done in conjunction with several of Europe’s largest financial institutions, will hopefully aid to dispel preconceptions and demonstrate the transformative effect innovation can achieve in this field,”
The technology was designed by Rabobank using R3’s enterprise level blockchain Corda, which was previously employed in experiments last year. Nevertheless, the business document is not native to the blockchain. It is a standard security issued using Euroclear Bank’s framework, with the key distinction that it settles instantaneously.
The technology is connected with older systems, especially for risk management, and the Netherlands Authority for Financial Markets has access to the blockchain for monitoring purposes.
“We think that the digitization of money markets may improve liquidity and transparency at a crucial period for the asset management business. Our 2021 trial was all about proof of concept (PoC), according to the Global Head of Trading at Rabobank, Youssef el Mir.
“These most recent trades and the solution we’ve developed collectively demonstrate that blockchain technological innovation can be incorporated into the legacy models of financial firms with the right method.”
In addition to commercial paper, additional instruments for short-term banking liquidity include repo and the trade of liquid assets. JPMorgan and Broadridge are using blockchain for intraday repo solutions independently. HQLAX employs distributed ledger to allow intraday trading of assets that would otherwise need two days to settle. And Finteum is a startup company that intends to provide intraday FX swaps and repo.