Marketnode ready to digitalize debt markets
The SGX-backed fintech is preparing to support a growing range of debt instruments and structured products.
Marketnode, a joint venture between Singapore Exchange and government-linked investment group Temasek, supported its first transaction last year in the form of commercial paper issued by OCBC Bank. Now the blockchain-based fintech is on the cusp of expanding its services to a broader range of instruments and products.
Rehan Ahmed, general manager and head of product at Marketnode, said, “When we launched Marketnode two years ago, the focus was on having a minimum viable product. But now we see this as requiring a minimum viable ecosystem.”
There are plenty of governments, banks, and corporates around the world experimenting with digitizing debt issuance via blockchain rails. So far in 2023, according to the International Capital Markets Association, such issuers have included the Hong Kong Monetary Authority (with its green bond), the City of Lugano, Switzerland, the European Investment Bank, Siemens, and a joint project involving Credit Agricole and SEB.
These projects remain splendidly isolated, usually involving a single issuer, one or two investors, a sponsoring bank, and a law firm.
Ahmed says the goal for Marketnode this year is to support enough debt issuance to attract multiple players, bring liquidity, and create a lively secondary market.
Marketnode focuses on the data and operational side of digitizing debt markets. It is not a marketplace, and it’s not in the business of fractionalizing traditional bonds.
Rather it has two business lines, one for primary markets in fixed income, and one for wealth management.
On the primary markets side, it has a product called Marketnode Gateway that digitizes the paperwork for issuers: documentation, ESG data, listing registrations on SGX, and disclosures to regulators.
The concept grew out of SGX’s reviewing how to ensure its depository and clearing house kept pace with the potential of blockchain technology to disrupt how bonds clear and settle. The longer-term goal is to make SGX an attractive venue to list bonds.
Commercial paper debut
Last year the Gateway debuted by helping OCBC issue $100 million in euro-denominated commercial paper, digitizing the short-term debt from issuance to settlement on Marketnode’s platform.
Commercial paper is simple stuff. It is short-term unsecured debt, usually maturing after 30 days (but can be up to 270 days), that high-grade issuers use for payroll and other day-to-day needs. It is also simple in structure, with no coupons, no collateral, a single repayment upon maturity, and no requirement to register it first with securities regulators.
- Read more:
- Digitizing loans | Bertrand Billon, iLex | DigFin VOX Ep. 53
- Bond association tackles DLT’s impact on liquidity
- Automated execution transforming Asian bond markets
That combined with a limited pool of investors and OCBC also acting as the sole dealer made the deal more like a proof of concept for Marketnode. But it worked, by reducing settlement from T+5 to T+2 days, and compressing admin and reconciliation costs because there was no manual processing or physical paperwork.
Now the company is keen to get into real bond issuance: from just providing data services, to enabling transactions. Marketnode still focuses on the legal and document side, but it needed a partner to help it extend operations downstream – into the trading world.
To make this happen, it teamed up with NowCM Group, a Luxembourg-based provider of bond digitalization solutions, including a cloud-native, regulated primary marketplace for fixed-income securities. Users can create deal documentation within NowCM’s app.
What this isn’t, however, is the digitalization of the securities themselves. They are not blockchain-native, but traditional instruments, albeit with all the paperwork, trading, and settlement done on digital platforms.
“This is the digitization of information, not the digitalization of the asset,” Ahmed cautioned. “We don’t want to jump the gun, although that is the end goal.”
Nonetheless the combination of using NowCM to create documentation and Marketnode’s workflows, issuers have the tools to transform everything else involved in primary markets. Then it’s up to the issuer, a dealer, or a sponsor to attract brokers and buy sides.
“We address the need for a complete market ecosystem by inviting one party to act as the central coordinator, and then they invite the other participants,” Ahmed said.
He adds that the company plans to support the issuance of medium-term notes before the end of June.
That’s the primary-markets side of Marketnode. The company is working to launch its debut wealth services later this summer.
Its main product is called Fundnode, which settles transactions of funds domiciled in Singapore. This market platform has been in the works since 2021, and now involves more than 20 asset managers, fund administrators, transfer agents, and fund distributors (such as banks).
The idea is to provide a central location to settle the creation and redemption of funds. This is not a novel idea: vendors such as Allfunds and Calastone have been in this business for years.
Ahmed says Marketnode has built an infrastructure native to Singapore that can cater to the various players involved in supporting fund transactions, but that is designed to scale one day to other markets and a broader set of products. Using distributed-ledger technology, it eliminates the market’s archaic reliance on faxes and PDFs when conducting sales.
Other vendors have promoted DLT-backed solutions in Europe; Calastone also tries to market its version in Asia. Marketnode seems to be going for regional dominance, starting with Singapore’s locally domiciled mutual funds.
“The cost of the DLT tech stack is becoming commoditized,” Ahmed said. “Unit costs are falling. Fundnode will be cheaper than legacy vendors.” But he says the goal is to only begin with local mutual funds.
“This is more attractive if it’s multi-asset and funds are just one product. We’re looking at this like a central securities depository: don’t be niche.”
What might that expansion entail? Ahmed notes that fintechs in the US and Europe are tokenizing private funds – private equity, private debt, VC, private companies – via either DLT or public, permissionless blockchains that connect to centralized virtual-asset exchanges.
Fundnode isn’t there yet. It’s not operating a blockchain, but an API-based hosting platform for permissioned users based in Singapore. There is a DLT that can host nodes (so that participants can create and validate blocks of information, such as transactions), but Ahmed says no one has signed up for that.
But he argues that tokenization and a new tech stack are on their way to becoming cheap, everyday phenomena. “This is business model innovation,” he said. “Tokenization must be married to workflows – transaction pain points, data management. It’s about putting everything together.”
The last piece of the Marketnode model is tokenization, which it calls Project Guardian. In this respect, Marketnode is serving as a cog in the great wheels of the Monetary Authority of Singapore. In November 2022, HSBC and UOB agreed to issue digitalized structured notes (made by HSBC’s investment bank, for UOB to sell to its wealthy customers).
These notes will be blockchain native, true digital assets that don’t sit in a depository. The choice of structured notes is deliberate. Just as the OCBC commercial-paper debut was kept simple, structured notes do not require a secondary market.
“They’re just complex enough to be interesting,” Ahmed said, noting that structured products traditionally take 10 to 14 days to settle, but with NowCM’s documentation and Marketnode Gateway’s data management, the entire process of a structured product, from creation to ultimate payoff, can be turned into a series of smart contracts. This should bring costs down, although it’s too early for fractionalization: the minimum investment will be $200,000. “Maybe one day we can get that down to $50,000,” Ahmed says.
That deal is slated for July or August.