Sberbank CIB1, the corporate and investment banking business of Sberbank, MTS, a leading Russian telecoms operator, and the National Settlement Depository (NSD) have placed commercial rouble-denominated bonds using smart contracts.
The NSD allowed the parties to use its blockchain platform — based on Hyperledger Fabric 1.1 — to carry out the transaction. The MTS bond issue, which is worth RUB 750 bln and has a maturity of six months, was organised by Sberbank CIB.
Commercial bonds are privately-traded unsecured fixed income securities that are placed on the OTC market. Prior to the transaction, a complete delivery versus payment settlement model was created using blockchain, which allows securities and money to be transferred simultaneously. The option to dynamically change the list of participants was added to work with a wide range of investors and the latest version of Hyperledger Fabric was used. As a result, a complete securities lifecycle was carried out in using blockchain-based smart contracts — from placement to the issuer’s performance of its obligations to investors, including settlement in roubles.
The issuer, central depository and investor received access to the decentralised platform to carry out the transaction. All work with accounts was confidential and in line with Russian law.
The bond placement, circulation and record keeping process is highly transparent as the system only operates using digitalised assets. Each participant can exchange documents online and track the status of the transaction. Settlements are carried out in the ledger system, which considerably speeds up the transaction. The cryptographic protection scheme allows all operations to be carried out electronically using the electronic signatures held by clients of Moscow Exchange Group. The source code of the smart contracts can be found on Github and is publically available in compliance with the Hyperledger project, which Sberbank and the Moscow Exchange Group have participated in since 2016.
Igor Bulantsev, Senior Vice President of Sberbank and Head of Sberbank CIB, commented: “Sberbank is the leader in terms of introducing high-tech and digital innovation in Russia’s financial sector. This MTS bond issue not only allowed us to confirm the reliability, efficiency and secure nature of the blockchain platform and carry out complex structured transactions involving securities, but also demonstrated the potential that this technology has to develop Russia’s digital economy.”
“MTS tests and deploys innovative technology in every area of activity, including corporate finance and fintech. We need to cut the time required to move innovations from pilot stage to full-scale implementation. Today, together with our partners we successfully carried out Russia’s first placement of commercial bonds using smart contacts and blockchain technology: from placement of the securities and receiving payment from investors to carrying out our obligations to investors,” said Andrey Kamensky, Vice President of MTS for Finance, Investment and M&A. “MTS will continue using blockchain, above all on financial markets because it increases transparency, is trusted by market participants, and helps optimise costs.”
“The NSD was one of the first organisations in Russia to adopt blockchain. We began working on a prototype platform for carrying out bond transactions in Q1 2017. The deal with Sberbank and MTS was the first of its kind, and shows that blockchain is a mass-use technology that provides confidentiality and speed when working with securities, said Eddie Astanin, Chairman of the Executive Board of the National Settlement Depository. “Our end goal continues to be the creation of infrastructure for recording digital assets together with market leaders. This is a vital step towards bringing institutional investors to the market and securing both dynamic growth and increased capitalisation.”
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Sberbank is Russia’s largest bank and a leading global financial institution. Sberbank holds almost one third of aggregate Russian banking sector assets, it is the key lender to the national economy and the biggest deposit taker in Russia. The Central Bank of the Russian Federation is the founder and principal shareholder of Sberbank owning 50% of the Bank's authorized capital plus one voting share, with the remaining 50% held by domestic and international investors. Sberbank has more than 145 million customers in 20 countries. Sberbank has the largest distribution network in Russia with almost 15,000 branches, and its international operations include UK, US, CIS, Central and Eastern Europe, India, China, Turkey and other countries.
Sberbank CIB is the corporate and investment banking business of Sberbank. Its key areas of activity are corporate finance (including trade finance), the documentary business2, investment banking services, trade operations with securities, and private equity. Sberbank’s corporate and investment banking business provides integrated financial solutions and investment advisory services to its clients, which include major corporations, financial institutions, sovereign states and federal and sub-federal government bodies and organisations.