Yesterday the International Capital Market Association (ICMA) released a paper reviewing risk factors and disclosures on some of the digital bond offerings during the past two years. ICMA has a DLT Bonds Legal Subgroup that analyzed the debt instruments. The aim was to highlight additional requirements for potential issuers and underwriters.
Because tokenization continues to be an evolving space, there are additional risk factors for digital bonds. However, the specific risks are particular to each bond. The working group reviewed bond issuances under Australian, English, French, German, Hong Kong, Luxembourg, Spanish and Swiss law.
ICMA grouped the extra disclosures into three categories.
- technology risks: including cybersecurity, risk or loss of keys and hacks, use of public blockchains
- evolving regulatory risks: including the lack of current EU harmonisation
- limited liquidity: the inability to list some bonds and a lack of secondary markets.
“Fostering the development of DLT-based bond markets as a reliable source of funding for the real economy is a strategic focus for ICMA,” said Bryan Pascoe, CEO of ICMA. “In an evolving legal and regulatory landscape, our paper marks an important step for this emerging market segment.”
Meanwhile, the rate of digital securities issuances continues apace. The Deutsche Börse has issued more than 4,000 digital instruments on the centralized version of its D7 platform. And transactions on the SIX Digital Exchange (SDX) will settle using a wholesale central bank digital currency (CBDC).
