BlockEx, which has created a Digital Asset Platform using blockchain technology, has partnered with Winston & Strawn to create standardised legal documentation templates that will form the basis of the smart contracts establishing bond issuances through the platform.
These standardised templates, which will cover approximately 90% of the documentation required will dramatically reduce the time and costs for bond issuances. BlockEx has 12 new issues currently under due diligence vetting and the intention is for the first issue to be made in May 2017.
BlockEx is leveraging its existing software to bring about enhanced automation to the entire lifecycle of a bond in order to reduce costs for market participants.
The BlockEx Digital Asset Platform is one of the few large-scale, production-ready Blockchain products and will be launching end of May 2017 with a full exchange, white label brokerage and debt origination tools that allows for full lifecycle management of Blockchain based financial assets.
“We have been closely watching developments in blockchain technology and have been looking at opportunities to create efficiencies for existing structures by incorporating blockchain technology” said Angus Duncan, a finance partner at Winston & Strawn in London. “We are delighted to be working with BlockEx on their exciting new project.”
“The BlockEx platform will democratise bond issuances enabling small to medium sized enterprises (SMEs) to tap bond markets at lower cost,” says James Godfrey MD Capital Markets at BlockEx. “A typical bond issuance will cost anywhere between $200,000 to $400,000 once banking and legal fees are accounted for.
“While most bond trading is over-the-counter, some organisations prefer to list on exchanges, and this can result in additional costs of $15,000 to $50,000. Some firms may need to obtain a rating for their bonds to increase their prospective customer base, and this can add a further $150,000 roughly.
“This makes it uneconomical and sometimes impossible for SMEs to exploit the bond market, and obtain access to capital markets. We believe that the BlockEx tool Digital Asset Creation tool for SME debt via Bonds, Trade Finance and Syndicated loans radically change this existing set-up,” said Adam Leonard, CEO at BlockEx. “We have received a lot of interest from SMEs who have been excluded from capital markets because the costs of going through a bond issuance are too high. The SMEs that are approaching us tend to be looking to carry out issuances in the region of between $10 million and $50 million. Current bond syndication costs simply make it too cost-inefficient for these firms to issue bonds. The BlockEx platform will shave costs dramatically to less than half and potentially even a quarter of what it is currently.”
Utilising a Blockchain enabled system also allows for instantaneous clearing and settlement of transactions. Bond trades, for example, taking place on the BlockEx platform operate in T+30 seconds, as opposed to the industry norm of T+5 in what will significantly reduce counterparty risk. The tool also permits for unique levels of transparency, with KYC and due diligence available on the distributed ledger at the time of issuance.
More about BlockEx and the potential for its disruptive technology for the aviation finance space in the next issue of Airline Economics – out soon.Date: May 15, 2017