Rabobank runs blockchain commercial paper pilots with Euroclear, Northern Trust – Ledger Insights

Rabobank used the blockchain to issue 1-week euro commercial paper worth €40 million in 19 pilot transactions.

As interest rates rise, the blockchain comes to the fore to enable shorter settlement times, enable intraday transactions and thus improve liquidity.

The commercial paper denominated in euros and pounds was issued by the Dutch Treasury, Rabobank Treasury and Austria’s Erste Bank with Northern Trust Asset Management as investor.

Instead of taking two days, issuance, distribution and billing took less than 30 minutes and cost less than the traditional process. Liquidity was facilitated in both the primary and secondary markets.

“Blockchain’s reputation as a technology with legitimate applications for global financial markets has undoubtedly been shaken by the turmoil surrounding cryptocurrencies,” said Roland van der Vorst, Global Head of Wholesale & Rural Innovation at Rabobank.

“Hopefully, the scale and success of our pilot project, conducted in partnership with some of the largest financial institutions in Europe, will help clear up misconceptions and show the revolutionary impact that innovation in this space can really have.”

Rabobank developed the platform based on R3’s Corda enterprise blockchain, which was also used in pilots last year.

However, the commercial paper is not blockchain-native. It is a traditional security issued in Euroclear Bank’s infrastructure, with the main difference that it is settled instantly.

The solution is integrated with legacy systems, including for risks, with the Dutch Financial Markets Authority having access to the blockchain for monitoring.

“We believe that the digitization of money markets can improve liquidity and transparency at a critical time for the wealth management industry. Our 2021 pilot was all about proof of concept,” said Youssef el Mir, Global Head of Trading at Rabobank.

“These latest transactions, and the solution we worked together to deliver, prove that with the right approach, blockchain technology can smoothly and seamlessly integrate with financial institutions’ legacy systems.”

Commercial paper is a tool for short-term bank liquidity, along with others including repos and trading in liquid securities. JP Morgan and Broadridge use blockchain for separate intraday repo solutions. HQLAX uses distributed ledgers to facilitate intraday trading in assets that would normally take two days to settle. And Finteum is a startup planning to launch intraday FX swaps and repo.