The Queensland Treasury Corporation is trialling Commonwealth Bank's capital markets blockchain platform with a bond issuance to test the end-to-end process of the digital financial instrument.
Blockchain is the distributed ledger underpinning the Bitcoin crypto currency. It records transactions between parties in a permanent and transparent way that is fast and easily verifiable.
The above features make blockchain attractive to banks and financial institutions seeking to automate transaction processing in a secure and efficient manner.
Acting as both the issuer and investor in the trial, QTC used the Commbank blockchain to generate a digital bond tender using smart contract technology. The bond itself was a trial prototype that is not tradeable and carries no debt obligation.
During the bond tender, issuers can view investor bids in real-time and finalise allocations and settle instantly with bond buyers, thanks to the blockchain acting as both a register for the securities and a payments platform.
Commbank's executive general manager of business and corporate finance George Confos said the proof of concept trial with QTC shows that blockchain is capable of increasing efficiency and transparency for issuers and investors, as well as other market participants.
QTC will use the working prototype to "think through applications" that are based on the blockchain proof of concept, according to its deputy chief executive and managing director Grant Bush.
Bush did not say if QTC intends to issue real bonds through the CBA or other blockchain systems.
Commbank will continue to work with clients and other financial institutions, including the R3 consortium, to develop blockchain-based applications, Confos said.