Bonds and bills all on the chain! The Taiwan Depository & Clearing Corporation (TDCC) announced the adoption of blockchain technology to enhance settlement efficiency.

The Taiwan Depository & Clearing Corporation (TDCC) announced the introduction of blockchain, digital identity verification, and electronic signatures on the securities stored on its centralized depository platform. This digitization of the bond delivery process aims to address the challenges of manual delivery or postal delivery in the fixed income market over the past 30 years.

Central Depository and Clearing Corporation Embraces Blockchain Technology

According to an announcement released by the Taiwan Depository & Clearing Corporation (TDCC) on September 8th, the daily trading volume of bonds and commercial papers in the market has exceeded 300 billion New Taiwan Dollars. In response to the needs of the Securities Association and the Commercial Paper Association, the TDCC plans to introduce financial technology on the depository platform for bonds and commercial papers, aiming to address the pain points of manual delivery or postal deliveries in the fixed-income market for over 30 years.

The TDCC stated in the announcement that under the current practice, when traders negotiate the buying and selling of bonds or commercial papers with customers, the traders need to personally deliver or mail transaction documents, payment vouchers, bond certificates, and other relevant transaction documents to customers for safekeeping. In cases of conditional bond transactions such as early redemption, traders must first retrieve the bond certificate from the customer before proceeding with the subsequent settlement operations, which not only consumes manpower but also affects settlement efficiency.

To address this issue, the TDCC has developed a new system that combines blockchain technology, digital identity verification, and electronic signatures. This system allows traders to deliver transaction documents instantly, and counterparties can confirm transaction details online in real-time. The TDCC mentioned in the announcement:

"By leveraging the unique characteristics of blockchain, including its tamper-proof and irrefutable nature, data transmission security is ensured, and the complete records can be used as digital evidence, significantly enhancing overall operational efficiency."

The TDCC has completed system development and internal testing and is expected to commence public testing for all market participants in September this year, with an official launch scheduled for the fourth quarter.

Integration of Blockchain and Bonds

In fact, this is not the first time Taiwan has considered integrating blockchain technology with bonds. The Central Bank of Taiwan discussed blockchain bonds on its Facebook fan page in February this year. There are already many conceptual proofs and practical applications of using blockchain or Distributed Ledger Technology (DLT) in the capital markets. One of the most notable examples is the world's first blockchain bond, Bond-i (Blockchain Operated New Debt Instrument), issued by the World Bank through the Commonwealth Bank of Australia in August 2018. Bond-i, issued using blockchain technology, initially raised 110 million Australian Dollars to fund the World Bank's sustainable development projects. Due to its success, the Commonwealth Bank of Australia announced additional issuances on August 16th, raising 50 million Australian Dollars from new investors, including TCorp, the financial management company authorized by the New South Wales government, and foreign investors.

Following the World Bank, many private banks have also issued blockchain bonds. For instance, on April 23, 2019, Crédit Agricole CIB announced on its official website that it had issued the first batch of asset-backed securities in the form of security tokens on the Ethereum public chain, totaling 100 million Euros (112 million US Dollars).

As blockchain technology continues to gain recognition from traditional financial institutions, it may soon become an indispensable infrastructure in the traditional financial system.