Sophie Gilder, the head of blockchain at CBA, said the semi-government bond market is a "very opaque market, and there are many intermediaries required to bring a deal to market. There are a lot of steps, most of which the market doesn't see. We wanted to explore building an entire market place in digital form. What we have done with this experiment is prove the use and effectiveness of the technology."
CBA's development team created the bond using a "smart contract" to manage the transfer of ownership (which is automatically updated if the bond is sold in the secondary market) and to automate coupon payments. This eliminates the need for someone in a back office to manually process payments.
The technology also creates a more transparent bookbuild for the issuer, CBA said. Under current processes, potential state government bond investors dial in their orders to a salesperson in the bank managing the deal. Depending on their banks' systems, the order might be entered into multiple places.