The global bond market is in a stage where returns are muted and any efficiency will be a huge plus. While regulatory costs, transaction costs and issuance costs eat away a part of the meagre returns, continuous credit risk monitoring and lack of liquidity have been major concerns. The presentation looks at the nature of processes involved in the issuance and trading of bonds and identifies the pain points of the market participants. Then it discusses how we may come up with a solution for solving the bond market’s pain points by maintaining the market on an ecosystem of blockchains. A possible blockchain design for the market is described and the roles that the participants may play in the new ecosystem is elaborated. Blockchain’s inherent services help in (1) Streamlining the issuance where all participants work in real time on common datasets and (2) Trading of bonds by eliminating duplicative steps & shrinking the settlement cycle The reduction in issuance time and settlement time, in turn, reduces market participant’s costs, risks and capital locked up. This solution design may have other positive side effects like improving liquidity, more transparency and easier asset servicing. The presentation concludes by looking at the evolving landscape and strategies that market players may adopt to stay in the forefront.

1. Presented by Prajeesh Jayaram in November 2016
BLOCKCHAIN SOLUTION FOR THE GLOBAL
BOND MARKETS
ISSUANCE AND TRADING OF BONDS ON
DECENTRALISED PERMISSIONED LEDGERS
PRESENTED AT
FINANCIAL INNOVATION SUMMIT 2016, MUMBAI, INDIA
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2. Use cases in Financial Services
 Payments & remittances
 Issuance, ownership & transfer of securities
 Audit trail, AML & regulatory reporting
 KYC & other aggregations
2
BLOCKCHAIN
Services provided
 Consensus
 Uniqueness
 Validity
 Immutability
 Authentication
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM
A transaction database that is
replicated, immutable, encrypted
and edited by consensus driven
collaboration
Technologies coming together
 P2P Networks
 Cryptography – Hashing, Digital
Signatures, Encryption
 Distributed Systems and Consensus
Use Cases Models
 Financial systems
 Provenance tracking
 Record keeping
 Multi-party aggregation

3. Present Processes and Pain Points
Possible Solution and the Future
Issuing and Trading on Blockchain
Benefits and Adoption Strategy
AGENDA
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 3

4. BOND ISSUANCE PROCESS
 Mutually-untrusting stakeholders playing specialized roles
 Consensus, information sharing, negotiation and authorization
 A shared repository of information, documentation
 Issue Post Launch - Intermediaries’ services throughout the life
 Depositories, Registrars, Custodians - record keeping and reconciliation
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 4
Comments
reporting
ISIN
Issuer
Investors
Rating Agency
Merchant Banker
Trustee Depository Exchange
Back Office
/ Custodian
Registrar
Regulator
Escrow Bank A/C
Bond Prospectus
Business, financial info
Credit rating
Security / collateral details
Term-sheet
Favourable
Terms
Consensus terms
Favourable
terms
Due diligence Instructions
Legal Counsel
Vetting/compliance check
Application form
& bidding
Application money
ISIN creation
Allotment
Charge
Favourable terms
Allotment
Marketing
Involves creating, sharing,
reviewing and approving
information and documentation
between multiple mutually-
untrusting stakeholders

5. BOND MARKET TRANSACTION
 Trading: Mature, secure and efficient process using the best in technology
 OTC broker or a Order Matching System
 Clearing: Central Counterparty manages DVP and counterparty risk;
 Custodian, Clearing Bank, Depository, Registrar - revenue of $40 billion in 2013^
 Settlement: Netting of obligations and T+2 settlement (mostly)
 Capital is tied up, ticketing charges, IT overheads and staff costs
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 5
Buyer Seller
DepositoryBack Office
Regulator
Term-sheet
Instructions
Funds Blocked
Buy
Exchange
Back Office
Broker Broker
Registrar
Central
Counterparty
Custodian Custodian
Buy Sell Sell
Instructions
Confirm
Confirmation
Confirm
Securities Blocked
Affirmation
Transfer
Funds Credited
Funds CreditedSecurities Credited
Securities Credited
Pre-trade evaluation Pre-trade evaluation
Clearing Bank
Issuer
Investor Servicing
Multiple copies of the
same transaction
information separately
maintained and
reconciled by
intermediaries
^ Source: Oliver Wyman Research

6. PAIN POINTS IN BOND MARKETS
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 6
Costs
• Transaction costs - $26 billion for US bonds in 2015
• Regulatory costs - $12 billion for KYC/AML in 2013
• Issuance costs and asset servicing costs
Risks
• Monitoring credit risk continuously; trusting ratings
• Liquidity - Fragmented market and capital constraints
• Counterparty risk and op risk – settlement errors & disputes
Delayed
Settlement

7. Pain Points and Present Processes
Possible Solution and the Future
AGENDA
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 7

8. Check Appropriateness
Bond TradingBond Issuance
APPROPRIATE SOLUTION?
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 8
creating, sharing,
reviewing and
approving information
between multiple
mutually-untrusting
stakeholders
multiple copies of the
same transaction
information separately
maintained and
reconciled by
intermediaries
• Shared Repository?
• Multiple Writers?
• Mutually Untrusting?
• Avoid Central Intermediary?
• Interacting Transactions?

9. APPROPRIATE SOLUTION..
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 9
The Asks
Hygiene factors
Security Scalability
Confidentiality Performance
Regulatory
Compliance

10. APPROPRIATE SOLUTION…
 Regulated permissioned replicated ledger for each bond issue
 All info from pre-issue to maturity maintained as chained transaction blocks
 Identifiable digital bond tokens
 Denominated in on-chain currency
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 10
Issuance Ownership
Risk
Monitoring Trading Servicing Reporting
The Design
Comprehensive
shared information
and value ledger
Market
Participants are
part of multiple
blockchains
Issuer
Investors
Intermediaries
Regulator
Bond Blockchain 1
Bond Blockchain 2
Market Infra Blockchain

11. Shared Databases
BUILDING THE BOND MARKET
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 11
 Network Layer - nodes, shared data and communication protocols
 Separate permissioned blockchains for each bond
 Market Infrastructure networks / blockchains; Gatekeepers
 Apps used by market participants
Exchange Bond 1 Bond 2KYC Bond 3
Network Layer Issuer Investor Intermediaries Regulator
Bond Market Building Blocks
Payment
Applications Asset Servicing Watchlist Wallet KYC CheckSupervisory

12. Genesis
Issuer creates
permissioned
private consortium
blockchain for a
new bond issue.
Regulator as
supervisor by
default
Pre-Issue
Issuer adds
intermediaries
(Banks, rating
agencies, trustees,
Legal etc.) for pre-
issue process,
documentation,
authoring digital
bond and issuance
IssueLaunch
Regulator
approves
documentation
and digital bond,
private blockchain
becomes
permissioned and
open for
subscription
Trading
Intermediaries
participating in
transaction
processing
execute
transactions and
store the
information on the
blockchain
AssetServicing
The blockchain
may have logic to
execute fund
transfers for
coupon payment
and redemptions.
Bondholding can
be derived from
the blockchain
Archiving
Blockchain
archived on
maturity,
conversion or
bankruptcy of the
issuer. This archive
includes all the
information about
the bond and its
transactions
BUILDING THE BOND BLOCKCHAIN
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 12
Issuer
InvestorsIntermediariesRegulator
A blockchain to record the bond’s entire life

13. THE MARKET INFRASTRUCTURE
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 13
Issuer Investors
Gatekeepers
Regulator
Intermediaries
Bond BlockchainExchange Payment
Network Purpose
Bond For issuance and trading of a bond
KYC For Gatekeepers to share KYC data
Exchange To share price info & trade commit
Payment For inter-Gatekeeper payments
Blockchains / Networks
KYC
• KYC / Payment networks may be blockchains
• Trustees and rating agencies – multiparty aggregators
• Some of these networks can be combined without losing
functionality and efficiency

14. PARTICIPANTS AND ECONOMICS
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 14
Node Actions Expense / Revenue
Issuer Genesis, Minting, Asset Servicing Intermediary Fees, Regulatory Fees
Regulator Reverse Tx, Node Additions Regulatory Fees
Intermediary Creating Documentation, Consensus Intermediary Fees, Transaction Fees
Gatekeeper Investor Node Additions, Consensus Intermediary Fees, Transaction Fees
Investor Transaction / Info Request Transaction Fees
Properly aligning incentives of market participants → blockchain adoption
IssuerInvestors IntermediariesRegulator

15. APPLICATION LAYER
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 15
Used by Investor to Hold AssetsWallet
• Functionality for exercising options, voting and other investor privileges
• Options to communicate intent to trade
Used by Issuer / Gatekeeper for Client verification / servicingKYC Check
• Admission to the Bond Blockchain restricted by KYC
• Other Gatekeepers can pay and get this info with investor’s consent
Used by Issuer for Servicing InvestorAsset Servicing
• Acts as a registry service for the issuer
• Servicing - issuer authorized or automated as the case maybe
Used by the Regulator for Supervision and DisputesRegulatory Oversight
• Check the trade details of a particular investor
• Movement of a security across trades - market rigging or manipulation

16. Present Processes and Pain Points
Possible Solution and the Future
Issuing and Trading on Blockchain
AGENDA
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 16

17. ISSUANCE ON BLOCKCHAIN
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 17
Issuer Investors
Gatekeepers
Regulator
Intermediaries
Bond BlockchainExchange KYC
Participants work in real time on common datasets
Regulator’s oversight and immutability → Transparency
Issuer’s Wallet Investor’s Wallet
Minted Bonds
On-chain Money
Allotment
All participants maintain multi-asset wallets
On-chain money convertible to fiat currency
Pre Issue
• Hash of all transaction documents
• Issuer creates unique bond tokens
with unique Asset ID
Issue Opens
• Issue opens & investors join after KYC
check
• Investors fund wallet for subscription
Issue Closed
• Issuer’s wallet funded with
subscription amount
• Some intermediaries leave

18. TRADING ON BLOCKCHAIN
 Available For Sale / Purchase flag
 RFQ trading in bond blockchain
 Gatekeepers may show trades in similar bonds
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 18
IssuerInvestors
Gatekeepers
Regulator
Intermediaries
Bond BlockchainExchange KYC
Exchanges add value in anonymity, order matching and price-
info dissemination
Seller’s Wallet
On-chain Money
Bonds
Settlement
True gross instantaneous settlement of bonds
Buyer’s Wallet
Blockchain anchoring
Committed on bond blockchain
Exchange OMS
Order request to bond blockchain
Price: Exchange Watchlist

19.  Securely store and manage identity
 Reconcile on-chain and off-chain ownership
 Member in market infra networks
 Authorize participation of traders
 Consensus formation in blockchains
THE GATEKEEPERS
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 19
Bank
They maintain
investor/trader’
s wallet = Bank
a/c + Demat a/c
convert
between on-
chain Money
and off-chain
currencies
They maintain
KYC data of
investor /
trader
They move the
assets between
wallet’s
May make
market in the
bonds they are
members of

20. Present Processes and Pain Points
Possible Solution and the Future
Issuing and Trading on Blockchain
Benefits and Adoption Strategy
AGENDA
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 20

21. Cost Savings
• Lower Regulatory Costs: Transparency and clearer order trail
• Lower Transaction Costs: Simplified market will lower back office costs, lower margin postings
• Fewer Market Intermediaries: Eliminating the need for replication and duplication
Risk Management
• Risk Reduction: Reduced operational risk and counterparty risk
• Liquidity Risk: Avoiding market fragmentation and provides liquidity
• Credit Risk: Amortized incentives for rating agencies, risk scores and risk analytics across securities
Benefits of Early Adoption
• Reap returns on blockchain investments – rush to file patents
• Employees and partners get used to working with shared ledgers upfront
ADDRESSING PAIN POINTS
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 21

22. BENEFITS FOR THE MARKET
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 22
Regulators
• Market oversight - transparency and clearer order trail
• Real-time monitoring of financial activity – asset bubble etc
• Eliminates risk of single point of failure
Investors
• Real time settlement and capital freed up
• Significant reduction in disputes and certainty in settlement
• More equitable and accessible market
Issuers
• Efficient investor servicing due to automation and no need of a registrar
• Price discovery even if trades not executed

23. ENABLERS AND POSSIBILITIES
 KYC: Digital system for storing identity attributes
 Real-time Risk Monitoring: Real time accounting;
granular credit scores
 Repos and Pledging: Very essential functionalities
for bond markets
 Smart Property: Contracts interacting with
tangible real-world assets → enforcement
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 23
Other ProspectsEnablers
Overcoming
institutional inertia
with regulatory
leadership
Legal framework for
digitization, validity
and enforcement
Collective
standardization for an
all-inclusive single
solution
Value and trust
improves with the
quality and stability of
the systems

24. CORPORATE STRATEGY
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 24
Iterate, Enhance, integrate
Enterprise
Awareness
Understand
Landscape
Form
Partnerships
Solve Pain
Point
Evaluate
Benefits
An evolutionary process, that can be
communicated as beneficial, by focusing on
solving specific pain points

25. PROJECTS AND LANDSCAPE
Digital Security Issuances
 tØ: Overstock issued crypto-bond on private placement basis
 Digital Asset Holdings: A portion of Pivit’s funding issued using distributed ledger technology
 NASDAQ Linq: Trading & tracking of shares in private companies using Open Assets Protocol
Testing by Bank Consortiums
 R3: Tested trading bonds using technology by Ethereum, Chain, Eris Industries, IBM and Intel
Capital Market Blockchain Projects
 Chain: Open source blockchain protocol helping banks to deploy and operate scalable blockchains
 SETL: A multi-asset institutional payment and settlement platform
 Counterparty: Financial tools built on top of the Bitcoin blockchain
 Clearmatics: Decentralized clearing network to settle trades and automatize financial contracts
 Symbiont: Distributed technology platform for institutional financial markets
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 25

26.  Global bond market - muted returns and poor liquidity
 Any efficiency will be a huge plus
 Blockchain characteristics help in streamlining issuance and consolidating liquidity (trading)
 Solution for these problems may be a blockchain ecosystem
 Separate blockchains for each bond / each issuer? Single blockchain?
 Entire life from genesis to maturity and two phase commit
 Design is an use case specific, iterative process
 Scalable, secure, confidential, reliable and compliant
 Partnerships / investments to learn the evolving industry standards – open source
SUMMARY
Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM 26

27. 27Friday, November 11, 2016 BLOCKCHAIN SOLUTION FOR BOND MARKETS BY PRAJEESH JAYARAM
BLOCKCHAIN TECHNOLOGY WILL FUNDAMENTALLY ALTER
THE WAY FINANCIAL INSTITUTIONS DO BUSINESS
ACCORDING TO A WORLD ECONOMIC FORUM REPORT
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