We’ve Come a Long, Long Way Together
Last week, we attended the Events Radar: 7th Annual Impact of Technology on Capital Markets conference hosted by Bond Radar in London.
This annual gathering brings together the movers and shakers involved in the digitisation of debt capital markets, including the dealers, issuers, investors, and tech companies attempting to change and improve the status quo.
As it has been every year since its inception, it was an enjoyable get-together and a timely reminder of how far we’ve come since I first attended the conference, 7 years ago.
It seems like yesterday
I was fortunate enough to be asked to speak at the very first iteration of this event way back in 2016. I was delighted to be invited back to participate again this year.
There were a couple of themes at this year’s event discussed by two different panels:
Blockchain and DLT
Workflow digitisation
Origin was invited to speak on the second panel. The focus was predominantly on the broad topic of workflow digitisation, but the wide-ranging discussion ensued, and we ended up covering a range of subjects, including the pace of adoption of DLT or “digital” bonds.
Eras of change
I’ve been on a few of these panels over the years, and so I’ve been able to act as a witness to the evolving rhetoric and sentiment around the topic.
Through the years, it has allowed me a good insight into the evolution of the tech and the conversation surrounding it. I’d describe that evolution as having 3 distinct eras:
2015-2016: “What do you do again?” – In the early years, the fact that there was even a problem with debt capital markets wasn’t well known or well accepted!
2017-2021: “Web3 will rule the world” – The “Web3” explosion outside of capital markets infected all the discussion within capital markets. If you didn’t believe in putting it on the blockchain, you were a dinosaur.
2022 onwards: “It’s all about structured data” – The biggest problem the market needs to solve is the over-reliance on manual processes and unstructured data.
Promise versus reality
Readers of our blog and followers of our business know that we’ve been singing from the “structured data” hymn sheet for years. Digitizing documentation and extracting the structured data from those documents has been our “North Star” for a time. It’s also been a principle we’ve used to guide much of our product development.
For example, we started building our termsheet generator back in 2017, launched it in 2018, and completed our first digitised transaction in 2019. To be frank, throughout much of that period, we had to deal with accusations of being “dinosaurs” for not betting fully on blockchain as the solution to all of our own and our market’s problems.
It’s been interesting to see the rhetoric bend back towards our camp. On the panels at this year’s event, even some of our competitors, who had taken a different view a few short years ago, were espousing the benefits of structured data, clarifying how the structured data problem had to be solved before the benefits of DLT could be realised.
Slow, slow, fast
The analogy I use, and one which I used whilst on the panel, is that it’s like trying to launch bitcoin in the ‘70s before everyone had a home PC, laptop or smartphone. Yes, the concept of a cryptographically secured chain of blocks of data was mooted in the ‘80s. But without the hardware entry point that people were comfortable using (i.e. laptops/phones), cryptocurrencies had no way to be of use or to scale.
DCM (with its myriad of PDFs, wet-ink signed documents, and emails) is, essentially, like the world in the 1970s. If we can get market participants using issuance platforms that can create digital, golden-source, structured data, then we can dream about what exciting use cases and functionalities we can build on top. You’ve got to slow to, eventually, go fast.
Some positive points of discussion
All that being said, there were some cool observations about the promise of new digital securities. In the panel on blockchain and DLT, there was agreement that for the issuance of securities, whether DLT is used or not probably has a limited impact on the success metrics of the issuance stage. However, there are benefits to the bond being “digital” over its life for its holders. For example, in the repo markets, JP Morgan has demonstrated using its blockchain, Onyx, to allow for intra-day repo transactions.
From an issuer’s perspective, the experience of issuance may not change materially for a DLT bond. But, if investors can access more granular liquidity because of the possibility of intra-day repo, it might incentivise issuers to do more DLT bonds as it might confer a pricing advantage to them.
There was also a discussion of Euroclear’s recent issuance of a new type of “Digitally Native Note,” issued by the World Bank and arranged by TD, with Citi acting as the issuing and paying agent. There was widespread agreement that this was an exciting step forward as this was the first “digital bond” that didn’t live purely in a walled-off ecosystem. Rather, it could be readily traded within the large ecosystem of investors connected to Euroclear’s existing settlement systems. While it’s probably not the finished article, without a doubt, it’s an important step that builds on top of the plethora of “digital” bond issues that we’ve seen in the market over the last couple of years.
A timely reminder
All in all, the event was a fascinating checkpoint along the 7-year journey that we’ve been on, striving towards digitising the debt capital markets.
In this business, if you’re in the weeds day-to-day, progress can sometimes feel somewhat slower than some would like. But looking back to where we were when the first conference was held in 2016, it’s clear to see that we’ve all come a long, long way together. It was cool to be reminded of that, and it’s exciting to think about where we might be 7 years from today in 2030.