Australian Bond Exchange Holdings Limited (ASX:ABE) (“Australian Bond Exchange” or “the company”) are excited to announce the successful test of the first near real-time Central bank Digital Currency (CBDC) bond settlement in Australia.
Key Points
- First near real-time CBDC bond settlements executed using Australian Bond Exchange’s technology
- Australian Bond Exchange one of 15 use cases chosen from 140 submissions to take part in the Reserve Bank’s CBDC Pilot Program
- Developing real-time atomic CBDC bond settlements could benefit financial advisers and regulators in reducing the need for messy contra settlements and the standard settlement time of two business days.
The Digital Finance CRC Pilot Program
In collaboration with the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC), Australian Bond Exchange is working to develop a revolutionary, almost instantaneous CBDC bond settlement system.
In November 2022, Australian Bond Exchange was chosen as one of 15 use cases, from 140 industry submissions. Since then, Australian Bond Exchange applied their proprietary trade and settlement technology to the real-time CBDC technology as part of the DFCRC Pilot Program.
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.
The First Near Real-Time Bond Settlement in CBDC
This week, ABE successfully completed the first near real-time settlement of a corporate bond trade, using Australian Bond Exchange’s expertise and proprietary settlement technology and the purpose-built “RBA CBDC Wallet” production environment.
There was a seamless navigation of the corporate bond settlement end-to-end which will radically transform the standard T+2 settlement process if the CBDC Pilot is to be implemented by the Reserve Bank.
“Australian Bond Exchange is excited about the participation into 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 corporate bonds to the digital currency space.”
Near-real time corporate bond settlements; from 2 days to almost instantaneous
T+2 settlement, where T is the date of trade, and + 2 is the number business days traders must wait until assets and money changes hands, is currently the standard process for settling bonds and other securities.
Currently, institutions responsible for T+2 settlement require trade proceeds to be exchanged two business days after the trade date.
However, for trades processed on a Friday, two business days can turn into a four-day waiting period, which is messy when multiple trades are executed concurrently. This 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.
Real time CBDC 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.
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