Bonds Worth €100 Million Issued Over Blockchain To Help Secondary Market Trading

One of Europe’s largest financial services organizations Societe Generale has announced to issue a whopping 100 million euros, which is approximately 112 million in U.S. dollar, of bonds as a security token on the Ethereum (ETH) blockchain.

According to Societe Generale, this project proposes a new standard for issuances and secondary market bond trading. Owing to blockchain’s ability to eliminate unnecessary third parties, it will also reduce both intermediaries and cost.

The banking and financial sector, despite being initially skeptical about the blockchain technology, is now actively seeking new areas and applications of the technology in their ecosystems. With blockchain’s success in various other industries, the financial sector could not afford to be left behind.

The French Societe Generale SFH operates as a specialized credit institution and the subsidiary of the Societe Generale Group. It was established to perform ancillary services for the parent group. With over 149,000 members of staff in 67 countries, the Societe Generale Group offers a wide range of advisory services and tailored financial solutions to secure transactions, protect and manage assets and savings, and help its clients finance their projects.

Societe Generale has rolled out its first pilot project developed with the alliance of Societe Generale FORGE, one of the 60 internal startups launched through the Group’s intrapreneurial program dubbed the Internal Startup Call. The objective of this initiative is to enable disruptive internal intrapreneurial projects to emerge that will be the embryos of future products and services, including projects that go beyond the realm of traditional banking services.

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According to the company’s announcement on April 23, the goal behind the million-dollar transaction was to explore a more efficient method for the issuance of bonds. Moreover, the company predicts that this move will add value to other areas as well, like product scalability and reduced time to market and computer code automation structuring, which in turn would potentially facilitate improved transparency in addition to faster transferability and settlement.

The Societe Generale Group has been involved in numerous blockchain initiatives in the past years. Only in last September, the Group was one of the major organizations in a joint venture that launched the Komgo SA. The purpose of the Swiss-based project was to digitalize trade and commodities finance processes through a blockchain-based open platform. The venture was developed in collaboration with the Ethereum-focused blockchain infrastructure and solutions group ConsenSys.

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Furthermore, earlier this month, the private bank Kleinwort Hambros, which is owned by the Societe Generale and acts as their private wealth management division in the United Kingdom, launched a blockchain note. The aim of the note was to give investors the needed exposure to companies that were most likely to gain benefit from the blockchain technology.

The reports revealed that new note would be an actively managed exchange-traded note (ETN) and would be available exclusively to the existing as well as prospective clients for a minimum investment of £1000, which is equivalent to about 1,300 U.S. dollars.

Applications of Blockchain in Finance

With newer use cases emerging each passing day, the blockchain technology has the potential to solve numerous problems that plague the financial organizations of today.

Fraud Reduction

The centralized database systems for operations and money management of today are highly vulnerable, mostly because of the amount of intermediaries that are involved and must be trusted with the security of money. The exploitation of even one intermediary could result in colossal losses. This is where blockchain comes in. Owing to its secure, decentralized and distributed database system, blockchain leaves no room for a single point exploitation or failure. As each transaction is stored in the form of a block with a cryptographic mechanism, it is extremely difficult to change it because if one block is breached all the other blocks on the blockchain immediately reflect the same change.

Know Your Customer (KYC)

The traditional financial institutions find it cumbersome to bear the increasing costs in order to comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) policies. These processes consume both precious time and resources, as they have to be performed by all the banks individually for each customer.

Blockchain’s incorporation in the system could help banks as the independent verification of each client by one financial organization would be accessible to others, thus eliminating the duplication effort in the KYC process.

Smart Contracts

A smart contract is a self-executable piece of code that runs when certain conditions written on it are completed, and this particular feature can be of significant use for the banks. In addition to making the process of financial transactions more efficient, it will also ensure the correct input of information as the transaction will be approved only if all the written conditions of the code are met.

Banks Utilizing Blockchain

Some of the biggest names in the banking sector have embraced blockchain technology for the plethora of uses cases that it has to offer.

JP Morgan Chase

JP Morgan, the New-York based multinational investment bank has rolled out a new division dubbed Quorum which is specifically dedicated for the research and implementation of blockchain technology. It is a platform based on the distributed ledger and smart contract technologies, and aims to support speedy transactions for enterprises in the industry.

Bank of America

One of the major banks in the United States, Bank of America, has filed a patent document which discusses the implementation of permissioned blockchain for the purpose of safeguarding records, verifying business and personal data. Furthermore, the proposed system will reportedly use blockchain to combine multiple existing data storage platforms into one in order to increase efficiency.

Goldman Sachs

This American multinational investment bank and financial services company Goldman Sachs, is actively involved in blockchain research. They even invested in launching a cryptocurrency project called Circle, the purpose of which is to solve problems like volatility in the digital currency space in order to make it a more reliable option in the finance sector.

Societe Generale and Blockchain Adoption

Coming back to France and Societe Generale, while this new endeavor is in fact a step towards blockchain adoption in the country’s financial sector, it is nonetheless a small step. Mass adoption of the technology is yet to be seen as the banking sector isn’t really rushing towards blockchain.

Head of digital market assets at Credit Suisse, Emmanuel Aidoo, has shared in an interview with Business Insider that the desire among financers to maintain the traditional status quo is the main reason holding back blockchain technology in the particular sector.

What is preventing the banking industry from rushing into it? I think it’s mostly culture. I think the tipping point is about having an entrepreneurial culture, a willingness to push people to keep asking why.

However, all is not doom and gloom as Aidoo did point out that 2019 would see banks taking interest in the technology as it could benefit them in terms of cost profile, which will encourage more rollouts of blockchain-based products.

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