Today, HSBC announced plans to launch HSBC Orion, its DLT-based bond tokenization platform. It says the European Investment Bank (EIB) could use it to issue a tokenized GBP bond under Luxembourg law.

The solution enables the tokenization of both the digital bond and the currency used for settlement, enabling atomic settlement or delivery versus payment (DvP).

“Digital assets are a rapidly growing part of financial markets. Our clients demand solutions that can deliver the benefits of tokenization within a trusted and secure environment,” said John O’Neill, Global Head of Strategy, Digital Assets, Securities and Markets Services, HBSC.

“We plan to use HSBC Orion to facilitate further digital bond issuance and expand its use to other products in 2023.” HSBC Securities Services plans to expand custody support for digital assets next year.

The digital bond initiative does not involve cryptocurrencies, but instead uses a permissioned blockchain infrastructure. We have requested more details about the technology, but have not yet received a response in time for publication.

“Tokenization opens up opportunities for fixed income issuance, including faster processing and improved operational performance,” said Asif Sherani, Managing Director and Head of DCM Syndicate, EMEA. The efficiencies of using blockchain make bond issuance cheaper, making smaller issuances more viable. A shared ledger reduces the need for reconciliation.

HSBC has previously conducted blockchain bond tests. In 2020, it worked with Singapore tokenization platform Marketnode to issue a 400 million Singapore dollar bond for agricultural company Olam and is one of the Marketnode solution launch partners.

In late 2021, it ran its experiments with the Banque de France using a wholesale central bank digital currency (CBDC) to settle digital bond transactions. This involved the Hyperledger Fabric and R3 Corda enterprise blockchains, with IBM as the technology partner.

Separately, HSBC adopted Baton Systems’ DLT technology for foreign exchange settlement. Initially, HSBC’s FX Everywhere was used between companies within the HSBC Group, later partnering with Wells Fargo to settle bilateral transactions.

Meanwhile, bonds and fixed income are one of the most popular asset classes for tokenization.

Last year, the EIB issued a €100 million bond on the public Ethereum blockchain. Yesterday, UBS issued a Dual Listed Swiss Digital Bond on both the SIX Digital Exchange (SDX) and SIX.

Switzerland, Luxembourg, France and Germany are the most favorable European destinations in terms of legal frameworks. Both the UK and the EU are launching DLT sandboxes to potentially update laws.