CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money

Token technology set to disrupt private markets

By Aaron Woolner

09:55, 9 November 2021

 Singapore's central business district
Singapore's central business district - Photo: Shutterstock

The fractionalisation possibilities offered by token technology powered by blockchain is set to disrupt the global bond market and bring in a new base of investors and issuers to the asset class, according to a senior digital exchange executive. 

While the total market capitalisation of the crypto sector recently topped $3trn for the first time, private markets are even bigger, the syndicated loan sector alone issues $4trn of new debt each year. 

Oi Yee Choo, chief commercial officer at Singapore-based ADDX, a digital securities exchange focused on the private market, told Capital.com that the use of blockchain technology allows bond issuers to write paper at much smaller amounts than is currently viable on global bond markets, broadening both the issuer and investor base. 

Oi Yee Choo, chief commercial officer of ADDXOi Yee Choo, chief commercial officer of ADDX - Photo: ADDX

Blockchain allows smaller bond issues

“ADDX sees the bond market as increasingly disruptive with digitisation because it's so inefficient today. The minimum size you raise with through a bond is roughly $250m. And for a lot of the smaller companies that's too big and too expensive.”

ADDX, which is licenced and regulated by the Monetary Authority of Singapore (MAS), has conducted a number of smaller value bond issues.

For example in March, Astrea VI private equity bonds, which were tokenised by ADDX’s iSTOX digital platform and reduced the minimum investment ticket to $20,000, from the typical US$200,000. Astrea is backed by Temasek, an investment vehicle owned by the Singapore government. 

Helped Astrea, CGS-CIMB raise debt

While in May this year, ADDX launched a SGD150m ($112m) short-term debt offering for Southeast Asian financial services provider CGS-CIMB, again via its iSTOX platform.

The first SGD10m tranche was oversubscribed by accredited individual and corporate investors, according to Choo, the entire SGD150m programme was carried out using digital securities with no traditional issuance.

According to MAS’ rules an accredited private investor is one with either; SGD300,000 income in the past 12 months, net financial assets of SGD1m or net assets SGD2m. 

Gold

2,716.45 Price
+1.740% 1D Chg, %
Long position overnight fee -0.0174%
Short position overnight fee 0.0092%
Overnight fee time 22:00 (UTC)
Spread 0.60

US100

20,800.30 Price
+0.440% 1D Chg, %
Long position overnight fee -0.0241%
Short position overnight fee 0.0019%
Overnight fee time 22:00 (UTC)
Spread 7.0

XRP/USD

1.48 Price
+3.220% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 0.01168

ETH/USD

3,425.00 Price
+3.220% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 6.00

Broadening the issuer base

In most global markets such numbers would class investors as high net worth individuals, but it is estimated that Singapore will have 437,000 millionaires by 2025 according to Credit Suisse - or 7.6% of its current population, bringing accredited investors status to a relatively broad swathe of its residents. 

ADDX is currently issuing a second round of commercial paper with an SGX-listed company, Valuemax, worth SGD100m and Choo says these initiatives are proving “very popular” with investors. 

Changes will take time

“ADDX is opening up a new base of investors because of the fractionalisation. But we are also opening up a new base of issuers. Because if you look at the recent SGD50m sustainable bond deal it is much smaller than a normal bond issuance.

If you went to an investment bank, you would probably have to do something like $200 to 300m minimum ticket in order for them to even get out of bed. It [tokenisation] provides issuers a new avenue for raising capital: previously the minimum bond market threshold was too high,” she added.

Despite the possibilities offered by tokenised bond offering, Choo is realistic that significant changes to the global bond markets may take time to emerge but she is confident that the technology to do so already exists.  

Possibilities to automate services

“It's not something that will happen overnight, because there's obviously a very deep incumbent bond infrastructure out there.

Choo says that tokenisation means it is possible to automate a lot of the post trade services, such as paying coupons, redemptions, rollover, and conducting new issues. 

“Those processes are easily handled by new tech and so are scalable, that's something that we look forward to really deepening the competency next year,” she says. 

Rate this article

Related reading

Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 660,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading