AFME publishes a roadmap focused on EU and UK sovereign bond issuance on the blockchain

The Association for Financial Markets in Europe (AFME) recently published a new roadmap focused on European Sovereign, Supranational, and Public Agency (SSA) bond issuers, as well as the EU and UK regulators and policymakers. The roadmap is known as “Scaling Capital Markets based on Distributed Ledger Technology (DLT).”

AFME wants to support SSA bond issuance on the blockchain

The AFME, known for being a major industry advocacy organization that represents European wholesale market participants, including the UK and EU, pointed to growing evidence of demonstrated liquidity and various benefits throughout the security lifecycle.

Right now, its focus is on bonds, and it highlighted that the global issuance of DLT-based SSA bonds for 2024 has already grown beyond $1 billion. The figure exceeds that of any previous year, with international and European SSA and government bond issuers leading the charge.

The market ecosystem is rapidly expanding, with the number of issuers, investors, banks, and other market participants willing to adopt distributed ledger technology also on the rise.

Furthermore, the origination and distribution process for blockchain-based bond issuance are not significantly different from those involved in traditional issuances. In other words, the underlying economic risks were assessed to essentially be the same.

Benefits of using DLT for SSA bond issuance

One notable difference is that the use of blockchain technology can offer transformative and tangible benefits, which is something that cannot be expected from traditional infrastructures. As a result, AFME believes that it could be beneficial to take the blockchain route in a greater capacity when it comes to the SSA bonds.

The benefits include more cost-effective management of issuance, thanks to the automation of workflows and corporate actions, as well as innovation in capital markets thanks to the possibility of programmable settlements. On top of that, DLT can also help reduce the risk of a single point of failure in financial market infrastructures.

In other words, blockchain benefits can reduce costs for investors, improve the resilience and efficiency of European capital markets, and boost liquidity. With this in mind, AFME encouraged European SSA issuers to consider the opportunities that come with the use of DLT, especially in terms of lending and shaping the capital market transformation toward DLT.

However, regulators and policymakers have just an important role to play in making sure that the regulatory framework supports the deployment of DLT where appropriate in the financial sector. It is their task to review existing obstacles when it comes to the security lifecycle, and grant support to digital cash solutions.