BMO Capital Markets, alongside the Ontario Teachers’ Pension Plan, has launched a pilot fixed income issuance transaction, mirrored on a blockchain platform.
In the transaction, the Bank of Montreal acted as the issuer, while Ontario Teachers’ purchased a $250 million one-year floating rate deposit note. It marks the first Canadian dollar fixed income issuance showing the viability of blockchain platforms, according to a release from the bank.
“This is an important first step in developing a fully functional blockchain capability that we think will eventually allow primary and secondary trading of securities,” said Kelsey Gunderson, head of global trading at BMO Capital Markets, in the release. “We understand the potential that blockchain brings to the capital markets and we look forward to continuing to drive innovative solutions to help our clients.”
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As a pilot project, the transaction is intended to actively demonstrate how smart contract and blockchain can come into play within fixed income markets, the release noted. The blockchain issuance system was designed and built by BMO, relying on open source blockchain infrastructure. In its current iteration, the prototype allows the issuer and buyer of the securities to see the transaction on the blockchain and check the accuracy of both the term sheet information and payment amounts up until the security’s maturity. The upshot of the demonstration is that the technology can reduce costs in compliance, financial reporting, security clearing and settlement of cash transactions, according to the release.
“Ontario Teachers’ is committed to exploring technology and innovations that might improve our ability to serve our members,” said Audrey Gaspar, managing director of treasury and integration at Ontario Teachers’, in the release. “We are pleased to partner with Bank of Montreal in this pilot blockchain initiative.”
Given the success of the initial transaction, BMO intends to further the project, seeking clients and institutions to partner with in evolving the system as it stands.
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