Global banking giant HSBC will explore the use of blockchain for the issuance of fixed income securities in a joint trial with Singapore Exchange (SGX) and investment firm Temasek.

Focused on the Asia bond markets, the trial intends to streamline the bond issuance process and reduce associated costs by applying tokenized securities and smart contracts, HSBC Singapore announced Nov. 13.

While Asia’s fixed income markets continue to grow, bond issuance and servicing processes remain inefficient, according to HSBC. This is purportedly due to the absence of a single platform for the exchange of information between multiple parties and tracking tools throughout the life of the bond.

Joint trial to employ smart contracts

As such, the new trial will apply tokenized securities and smart contracts — blockchain-powered execution agreements between a number of parties — to facilitate interactions between investors, bond arrangers and custodians.

Lee Beng Hong, the head of the fixed income department at SGX, noted that having HSBC and Temasek in the trial will allow the firm to assess whether smart contracts and distributed ledger technology can fix some of the challenges of the fixed income issuance market. Tony Cripps, CEO at HSBC Singapore, said:

“The potential of DLT is an evolving story, and its role in overcoming inefficiencies in the fixed income market is yet to be seen. Only by collaborating with market participants will we fully understand its actual viability; by partnering with SGX and Temasek, we hope to explore whether digital assets could become a reality.”

All three participants of the new Asia-focused bond market trial have already been experimenting with blockchain technology.

On Nov. 11, Temasek and Singapore's central bank introduced a prototype multi-currency blockchain-based payments network developed together with JPMorgan. In October, HSBC successfully applied a blockchain-based letter of credit in Malaysia. In November 2018, SGX successfully completed a blockchain trial involving tokenized assets settlement in collaboration with the Monetary Authority of Singapore.