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

Rabobank used blockchain to issue €40 million in one-week euro maturity certificates across 19 pilot transactions.

With rising interest rates, blockchain comes to the fore to provide shorter settlement times, enable intraday transactions and thus improve liquidity.

The note, 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, the issuance, distribution and settlement took less than 30 minutes and cost less than the conventional process. Liquidity was activated 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.

“The scale and success of our pilot, delivered in partnership with some of the largest financial institutions in Europe, will hopefully help address misconceptions and show the revolutionary impact innovation in this area can really have.”

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

However, there is a hint that the certificate may not be purely blockchain-based instruments. The announcement states: “The securities were immediately issued and settled against fiat cash on Euroclear Bank’s infrastructure.” We asked for clarification but did not receive a response in time for publication.

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

“We believe digitalization of money markets can increase liquidity and transparency at a critical time for the asset management industry. Our pilot in 2021 was about proof of concept,” says Youssef el Mir, Global Head of Trading at Rabobank.

“These latest transactions and the solution we’ve partnered to deliver prove that blockchain technology can be smoothly and seamlessly integrated into financial institutions’ legacy systems with the right approach.”

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