'Blockchain can make secondary markets more transparent'
Societe Generale Forge, a subsidiary of the French banking group, was one of the partners behind the European Investment Bank’s (EIB) bond issuance on the Ethereum public blockchain for institutional investors, with a Central Bank Digital Currency (CBDC) component. In this interview with Asset News, Jean-Marc Stenger, CEO of Societe Generale Forge elaborates on the possibilities of blockchain to improve the efficiency and shorten the post-trade settlement process and increase transparency, especially on the secondary markets.
Asset News: What kind of an impact could blockchain have on the post-trade process?
Jean-Marc Stenger: The example I cite is the difference between posting a letter and sending an e-mail. Today, it takes 2-3 days between buying a security and ownership, due to the lengthy settlement process. Through our blockchain operations, it takes a few seconds.
Has there been a demand for this technology among issuers?
Societe Generale has already carried out some operations of this type, such as completing the first financial transaction settled with a central bank digital current or the first structured product on public blockchain.
There has been growing interest in blockchain technology after the European Central Bank’s announcement of its study of a digital form of euro by 2025. As long as central banks have a digital form of the euro, transactions with blockchain technology will gain attention.
How have investors reacted to settling transactions on the blockchain?
Due to the novelty, we have to explain the details of the technology and applicable regulation to investors for them to participate in a transaction and book this new form of securities in their system. For this, we are creating systems, notably digital custody services, and open-source standards to allow investors to buy this type of securities as easily as possible. Compliance and risk management teams also adopt these new forms.
Issuing a security onto a Blockchain is as regulated as a traditional issuance and protection of investors, issuers and market integrity rules are equivalent.
In terms of infrastructure, on any blockchain, investors need to be identified with a wallet, which is a service we offer. Societe Generale Forge was created to equip and provide these issues of securities but also its holding, especially through wallets on the blockchain to investors.
Issuing a security onto a Blockchain is as regulated as a traditional issuance.
How can blockchain foster transparency, especially on secondary markets?
That is the whole point. There is more transparency than what we have today and it can be tailored. We can adjust the level of transparency. More liquidity means better market efficiency, broader investment, and reduction of high costs. The post-market can be partially or fully automated, which increases efficiency, quality of service and reduce costs.
Where do you see the main challenges to this technology?
The main challenge is the issue of adoption. Market participants must adapt to this technology and be comfortable. There are also issues of security and resilience requiring new provisions to ensure that we are on the same level as current financial markets.
We have designed an open-source standard named CAST (for Compliant Architecture for Security Token) to facilitate mass adoption. It constitutes a comprehensive operational model proposal designed for the issuance, custody and OTC trades of Security Tokens. It has been approved and implemented in substantial issuances of Security Tokens realised in 2019, 2020 and 2021 by systemic regulated institutions (banks, supranational, brokers…).
The purpose of this standard is to propose a framework at bank-grade level designed to facilitate the establishment of market practices and standards acceptable for capital market participants (issuers and investors), recognised trusted third parties (banks, investment firms, fund administrators, lawyers, consultants, among others), as well as start-ups and technology service providers. This will also serve as a milestone for ongoing and future discussions with various policymakers and regulators across countries.