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BondEvalue gets approval to operate blockchain-based bond exchange in Singapore

Singapore-based fintech BondEvalue has been approved as a Recognised Market Operator (RMO) by the Monetary Authority of Singapore (MAS). It operates BondbloX Bond Exchange (BBX), a blockchain-based bond exchange, and aims to bring trading of a wide range of fixed-income securities to the mass market across the region.

BondEvalue officially graduated from the MAS’ regulatory sandbox on 1 October 2020. The move means that BondEvalue has successfully concluded proof of technology and business model. It is now no longer bound by restrictions such as limits on trading volume and disclosures specific to the sandbox model.

“Getting the MAS’ greenlight is a big deal for us, our partners and our ecosystem," commented Rahul Banerjee, founder and CEO of BondEvalue. "It will help to accelerate engagements with potential partners. Our experience affirms the success of the MAS’ sandbox in allowing fintechs like us to innovate, experiment with disruptive technology and trade on a limited scale without significant risks to our investors and ourselves.”

Democratising bond trading?

While it was still in the sandbox, BondbloX successfully carried out the world’s first blockchain-based bond trade in August 2020 and the first-ever coupon payment on blockchain in September. BBX allows for bonds to be traded in smaller sizes of US$1,000 unlike typical bond trades of at least US$200,000. The firm says that this leads to better access and better diversification opportunities for a market that is typically inaccessible except to more wealthy investors.

The blockchain technology makes trading transparent and cost-effective. Settlement on BBX is on a T+0 basis, occurring within seconds instead of the normal two-day settlement cycle, thereby reducing counterparty settlement risks for investors.

BondEvalue’s Initial Launch Partner UOB Kay Hian, part of the UOB Group and one of Asia’s largest brokerages, and its first member, multi-family office Taurus Wealth Advisors, will ramp up to bring more investors to the platform. BBX is integrated with Northern Trust as the Designated Custodian and works closely with external counsel Linklaters to bring BondbloX alive.

Investors around the world can trade on BBX via web and mobile devices by opening an account with their banks, wealth managers, family offices or robo-advisors, subject to individual country restrictions on bond trading. In Singapore, BBX is open to accredited and institutional investors.

Phasing out paper-based instruments

The BondEvalue news comes as Singapore's government is increasingly looking for ways to move beyond paper-based instruments in the trade finance space. Answering a question in the Singapore parliament earlier this month about trade financing fraud, Tharman Shanmugaratnam, senior minister and minister in charge of MAS commented that recent fraud cases in the commodities trading sector have been attributed to weak disclosure practices and internal controls among a minority of trading companies. 

"To prevent such fraudulent activities and restore confidence, there needs to be a strengthening of standards and practices of transparency and governance in the commodities trading sector, more robust credit risk assessment, as well as a move away from paper-based processes as they are more susceptible to risk of fraud," Shanmugaratnam commented. 

In terms of actions taken to prevent such fraud in the future, the Association of Banks in Singapore (ABS), with the support of MAS, Enterprise Singapore (ESG) and Accounting and Corporate Regulatory Authority (ACRA), is developing a code of best practices to enhance commodity financing standards in Singapore. The banks are currently consulting the trading companies, who themselves have an interest in higher standards being practised amongst all players in the industry. The code should be finalised in Q4 2020.

MAS is also partnering the industry and other government agencies to digitalise trade financing, and replace the current paper-based systems with electronic documents and data flows. This will better ensure authenticity of documents, and allow banks to obtain data directly from Singapore Customs to perform risk assessment.

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