MTS, a Russian telecommunications operator, Sberbank CIB, Sberbank’s corporate investment business, and National Settlement Depository (NSD), Russia’s central securities depository, for the first time in Russia have placed commercial bonds denominated in rubles and based on blockchain with the full life cycle of a security in the form of a set of smart contracts – from placement to the full performance of the issuer’s obligations to investors.
To process the transaction, National Settlement Depository provided its own blockchain platform based on Hyperledger Fabric 1.1. Sberbank CIB was the organizer and main buyer of the issue of MTS bonds with a 6-month maturity term for a total sum of RUB 750 million.
Commercial bonds are debt instruments which are unsecured and sold on the OTC market via private placement. As part of the transaction preparation, NSD implemented a full Delivery versus Payment (DVP) settlement model based on blockchain allowing it to transfer securities and funds simultaneously. NSD added an option to change the composition of network participants to work with a wider circle of investors, and updated the system to the newest version – Hyperledger Fabric.
To perform a transaction, the issuer, the CSD, and an investor were granted access to the decentralized platform. The confidentiality of work with accounts was ensured, and Russian legislative specifics were taken into consideration.
The system processes only digitalized assets, making the process of placing, circulating, and record keeping securities highly transparent. Each party to the transaction can exchange documents online and follow the transactions’ status. Settlements are conducted directly in the record keeping system, and this accelerates the process of concluding the transaction. The selected cryptographic protection scheme let all operations be conducted electronically using the signatures of the Moscow Exchange Group’s clients. The source code of smart contracts is available at https://github.com/altoros/ nsd-commercial-paper/; it is open in accordance with the requirements of the Hyperledger project in which Sberbank and the Moscow Exchange Group have been participating since 2016.
Eddie Astanin, Chairman of the Executive Board, National Settlement Depository, pointed out: “NSD was one of first Russian companies which were interested in blockchain. In the first quarter of 2017, NSD began developing the prototype of the platform to conduct bond transactions. The Sberbank and MTS transaction was the first one which gave blockchain the status of an industrial technology which ensured confidentiality and accelerated securities settlements. Our final task is to create digital asset accounting infrastructure together with market leaders; the existence of the infrastructure is a crucial condition for institutional investors to enter our market and for the market’s successful development and increase in its capitalization.”
Igor Bulantsev, Senior Vice President of Sberbank, Head of Sberbank CIB, said: “Sberbank is Russia’s leader in the implementation of technological and digital innovations in the financial sector. Issuing MTS bonds has not only allowed us to confirm the reliability, efficiency and safety of the blockchain-based platform for organizing and conducting complex structured securities transactions, but also demonstrated the great potential of the technology for the development of Russia’s digital economy.”
Andrey Kamensky, Vice President, Finance, Investments and M&A, MTS, added: “MTS is testing and implementing new technologies in all its business areas, including corporate finance and FinTech spheres. We set a task to accelerate the process of putting innovative solutions into operation after the test phase. With our partners’ assistance we have successfully implemented the first Russian issue of commercial bonds via smart contracts based on blockchain in the entire settlement chain – from placing securities and receiving funds to the full execution of the issuer’s obligations to investors. MTS will continue to use the blockchain technology, first and foremost, on financial markets, as it helps to improve the transparency of transactions, to build trust with transaction participants, and to reduce costs of operations.”