Russia’s first transaction issuing commercial bonds based on the blockchain technology was a success, from placement to the full execution of the issuer’s obligations to the investor, according to the National Settlement Depository (NSD), Russian’s central securities depository.
The full life cycle of the security, a RUB 500 million commercial bond issue of MegaFon paid off at par value, organized and bought by Raiffeisenbank was based on blockchain technology.
Eddie Astanin, Chairman of the Executive Board, NSD, said: “The issuance of MegaFon commercial bonds via NSD’s blockchain platform was a revolutionary event in the industry and attracted the interest of Russian issuers and our international partners in the post-trade sector. We demonstrated that blockchain is able to serve as an industrial solution on the financial market.”
The MegaFon and Raiffeisenbank transaction which was carried out on NSD’s platform generated great interest by issuers and investors in the new technology for accounting rights to securities. According to NSD, in 2018, interest in blockchain-based bond issues may reach RUB 10-15 billion.
Gevork Vermishyan, Chief Financial Officer of MegaFon, added: “The placement of the bonds using blockchain technology allowed us to save time required to settle the transaction, and to ensure the reliability of accounting for the issuer’s and investor’s rights. MegaFon strives to be an innovation leader; after the bond issue, we conducted a payment operation using blockchain technology. We are happy with the success, and we confirmed the hypothesis of the efficiency of the new technology using the example of these two transactions. We are sure that our experience will inspire other players to use blockchain, and this will bring innovations in traditional markets, in general.”
As part of the transaction’s structure, an issuer, a CSD, and an investor received access to a decentralized platform. NSD began working on the platform prototype for bond issues in the first quarter of 2017. Within the framework of the project, the issue of ensuring confidentiality when working with data on securities balances was resolved. Russian legal specifics were also taken into account.
The system works only with digitalized assets, making the process for placing, circulating, and record keeping for securities as transparent as possible. Each transaction participant is able to exchange documents online and monitor the process of making the transaction. Cryptographic protection and verification allow all operations to be conducted electronically.
Blockchain is a single source of information about the current rights, liabilities, and operations of participants. Participants may maintain their local record-keeping books by copying registers from the blockchain, ensuring that accounting is correct and that synchronization is guaranteed.
When a transaction is carried out on the basis of blockchain, requirements in the system’s technical backup are eased, and the necessary fault tolerance is achieved via a physical distribution of the system’s copies in several sites.
Andrei Popov, member of the Management Board, CIO of Raiffeisenbank, pointed out: “As a result of the transaction, there is a huge interest by market participants in using blockchain as a technology for issuing financial instruments, as it achieves higher efficiency and speed at a lower cost. We see great potential for further developing this technology. Practically the entire process, from the decision to issue bonds to the repayment of securities, may be fully algorithmized and automated using the blockchain platform and smart contracts.”
