Japan’s largest banking group, Mitsubishi UFJ Trust and Banking Corporation (MUFG) announced a major deal with NTT Data to develop the Japanese digital corporate bond market. MUFG launched the blockchain tokenization infrastructure Progmat and NTT Data owns Japan Information Processing (JIP) which operates Japan’s largest bond issuance and payment agent solution. JIP’s bond offering is used by 95% of JASDEC (Japan’s Securities Depository) agents.
Blockchain is expected to cut the costs of bond issuance and servicing as well as make it easier to use bonds for collateral in other transactions. Lower costs mean smaller bond issuances become viable and it also supports fractionalization or smaller denominations, broadening the investor pool.
As context, Japan is one of the most active tokenization jurisdictions for major financial institutions launching digital assets. MUFG estimates there have been Yen 96 billion ($670m) in issuances so far, with Progmat as the most popular platform. However, to date, most security tokens are for tokenized real estate.
In contrast, the majority of institutional issuances in Europe are for bonds, although a significant proportion are sovereign with the European Investment Bank (EIB) issuing four digital bonds so far.
The MUFG, NTT Data digital bond deal
The collaboration includes developing a standardized infrastructure for corporate bonds, a broader digital assets collaboration and MUFG Bank will support the issuance of bonds.
The companies plan to work on a proof of concept for DBM (presumably Digital Bond Management). DBM sits within NTT Data’s bond infrastructure and connects out to Progmat for security tokens. NTT Data plans to initially involve 20 financial institutions that are already using its bond infrastructure.
At the end of 2022, MUFG announced plans for Progmat to become a joint venture, with NTT Data as one of the participants. However, there has been no news on that since. NTT Data is one of the members of the proposed joint venture.
In terms of competition, BOOSTRY is Nomura’s tokenization platform and corporate bonds are its primary initial target.
Meanwhile, NTT Data has significant blockchain experience. It developed Italy’s Spunta project which automates the interbank reconciliations of most Italian banks. And it is the founder of TradeWaltz, the Japanese blockchain trade platform in which MUFG was among the initial investors.
