SGX, Temasek JV partners Covalent Capital for end-to-end digital infrastructure

MARKETNODE, the joint venture between Singapore Exchange (SGX) and Temasek announced last week, has entered into a partnership with fixed income issuance and data company, Covalent Capital.

In an exchange filing on Friday, SGX said Marketnode will acquire a minority stake in Covalent as part of the partnership.

Under the partnership, Marketnode and Covalent will collaborate and build the Asia-Pacific's first, end-to-end digital infrastructure in the fixed income space, SGX said. The entities will streamline the listing, straight-through processing and settlement of bonds and activities in bond lifecycle management.

The partnership builds on the bourse's efforts in digital bonds, and the use of digital asset infrastructure to improve efficiency in the capital markets.

Lee Beng Hong, senior managing director, head of fixed income, currencies and commodities at SGX, told The Business Times there were existing pain points and inefficiencies in the capital markets, such as the way information is passed and processed.

To address these pain points, SGX had earlier partnered Temasek and HSBC to explore the use of recent technologies such as distributed ledgers and smart contracts. It resulted in the issuance of Asia's first public syndicated digital bond for Olam International last August.

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Since then, SGX's digital asset issuance, depository and servicing platform has been used to issue four digital bonds by several issuers, with a total size of over S$1 billion.

Temasek and SGX entered into the Marketnode JV last week, looking to advance digital asset infrastructure in capital markets, starting with fixed income.

Pradyumna Agrawal, managing director, Blockchain@Temasek, noted that the platform removes certain ineffciencies, such as having multiple parties carrying out replicated steps.

Mr Lee said: "What we are building is enablement, so that the whole ecosystem can enjoy a lot more efficiency, lower cost, better price transparency and workflow."

While the current platform focuses on post-trade and asset servicing, Mr Lee said they felt they could accelerate the process by working with a technology partner such as Covalent that has a similar digitalised workflow in the pre-trade phase.

The partnership will connect Covalent's OMAS platform, which is a data, book building and allocations tool, with SGX's listing, post-trade and asset servicing capabilities. SGX said this provide the Asian bond market with a "unique, one-stop listing, issuance and lifecycle management platform".

"All information gets digitalised right at the start all the way through," said Mr Lee, adding that it would remove the need to repeat validation of information.

Mr Agrawal noted that new asset classes, such as very short-term paper, can potentially be brought to the infrastructure, where it may not have been feasible previously due to existing inefficiencies.

Sriram Chakravarthi, member of the Singapore Academy of Law’s Law Reform Committee and counsel, Rajah & Tann Singapore said it is increasingly important for financial centres like Singapore to remain pioneering in developments, not just in regulatory space but also in product space.

Apart from efficiency, he noted that digitalising can also help in terms of financial innovation and inclusivity, such as where new issuers might want to issue certain products or raise capital in Singapore.

He added that trust would also need to develop before people move to a new way of conducting business.

Mr Lee also added that a powerful aspect of a fully digitalised infrastructure is it would be asset class agnostic. While Marketnode's current focus is fixed income, he added: "Over time . . . we would also want to look at other asset classes where we can use the similar technology to improve."

SGX shares closed at S$9.90 on Friday, up S$0.06 or 0.6 per cent, before the announcement.