Into the digital future
SIX Group opened the doors to a digital future in November when it printed the world's first fully digital regulated bonds. With it, the Swiss financial infrastructure giant and owner of Switzerland's stock exchanges made history and took the first step into a digital marketing infrastructure future.
The bond was described as a "testament to Swiss innovation and the biggest change in the Swiss bond market in a quarter of a century, since electronic trading started on SIX in 1996", by Manuel Gadient, head of debt capital markets and syndicate Switzerland at UBS.
Although not the very first digital bond, the issue is much more mainstream than others, being on a regulated exchange. It provides a framework for others to follow, and "will not be the last", said Ben Heck, head of Swiss bond syndicate at Credit Suisse.
Years in the making, it required the setting up of SIX's digital subsidiary, SDX, as well as Finma approval for it to operate as a stock exchange and a central securities depository for digital assets.
Uniquely, it was marketed as a split digital and conventional bond, the tranches exchangeable between each other. Books opened on November 18 for a SFr150m (US$162m) no-grow five-year at 0.1%–0.15% yield. It priced mid-guidance with a 0.125% coupon and yield, with the final split skewed heavily towards the new digital tranche at SFr100m, and only SFr50m of conventional bonds.
"The two-part structure and option for bondholders to exchange between the two during the life of the transaction offered comfort to those investors not willing or ready to buy in digital format yet, and ensured SBI index eligibility," said Dominique Kunz, managing director of capital markets at Credit Suisse.
The digital bond settles through atomic swap versus delivery of tokenised Swiss francs (tCHF) that are held on the same SDX network. Settlement is instantaneous, automatic and entirely removes a central counterparty and associated risk. tCHF is a digital currency, linked 1:1 to the Swiss franc, and not a free-floating cryptocurrency with all the volatility that entails.
Both tranches could have been much larger, with demand far exceeding supply, at over SFr700m, but SIX had already taken the decision to set the size at SFr150m to test the waters and provide proof of concept. Insurers took a majority of the digital tranche, while asset managers made up most of the conventional demand.
"[It's] a space to watch, transition is everywhere – it's not getting easier but rather faster" said Armin Peter, global head of debt syndicate and head of sustainable banking, EMEA, at UBS.
Credit Suisse, UBS and ZKB were leads on the deal, rated A by S&P.
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