David Rutter, enterprise blockchain firm R3’s CEO, has started a corporate bond technology venture. LedgerEdge is building a platform and ecosystem for secondary trading in the corporate bond market. According to the firm, $59bn is traded daily with less than a third traded electronically.
The new solution aims to improve market liquidity by addressing market inefficiencies as well as weaknesses in current solutions. It will shift away from a centralized store of data and avoid data leakage. Unsurprisingly it plans to use blockchain technology, artificial intelligence and secure enclave computing, which addresses the leakage issue.
“The secondary market for corporate bonds is growing and is ripe for an evolution, but existing platforms are not fit for purpose,” said Rutter. “Data is monetised by platforms and it is leaked across fragmented, opaque markets, decreasing execution quality. Working with the industry, we will build a platform that solves the challenges of locating and promoting liquidity and data ownership once and for all.”
Rutter has extensive experience in the sector. Before founding R3, he spent ten years at ICAP as CEO of ICAP Electronic Broking, including leading the fixed income (BrokerTec) business. More recently, he founded LiquidityEdge which focused on treasuries and was sold last year to MarketAxess for $150 million.
The startup aims to get a multilateral trading facility (MTF) license in the U.K. as well as a U.S. license. The company was incorporated in the U.K. in March with R3’s former Head of Digital Assets, David Nicol, becoming CEO at that time. Ian Chicken, who has experience at ICAP/BrokerTec, is the COO and Bob Bose is CTO. Bose also had a stint at ICAP and, more recently, was at NYSE Euronext and Santander.
The opportunity size
We took a quick look at some statistics from the BIS, which show there are almost $4 trillion international corporate bonds in issue. But when combined with domestic figures, just six countries stand out. The U.S. has $6.6 trillion outstanding, followed by $3.6 trillion for China. The next four countries have between $500 billion and a trillion in issue and they are Japan, France, the U.K. and Canada.
One of the questions we’ve asked is what about R3 partners or clients with activity in the corporate sector. Might they be concerned about discussing bond applications with R3? Because the bond market has attracted significant interest in the enterprise blockchain sector.
That’s particularly the case in Asia, with multiple groups looking at tokenizing corporate bonds. In Japan, there’s Boostry founded by Nomura (R3 investor) and Nomura Research. MUFG (R3 investor) initiated a Security Token Research Consortium with Mitsubishi, NTT (R3 partner) and Accenture with a focus on bonds. In Singapore, the SGX exchange is working with HSBC on a blockchain fixed income platform.
However, in Europe, two banks Santander and Societe Generale, have taken an interest in using public blockchains for bonds.