First Secondary Market Securities ILS Blockchain Trade Completed

Blockchain written on the link of a chain

December 15, 2017 |

Blockchain written on the link of a chain

Two funds have performed a secondary market insurance-linked securities (ILS) blockchain trade in notes that were digitized on a private blockchain set up by Solidum Re, a Guernsey incorporated cell company (ICC).

Initial Transaction

The maiden blockchain arrangement occurred in August when Dom Re IC, an ILS reinsurance transformer and incorporated cell of Solidum Re ICC (Guernsey), issued notes created on and settled through a private blockchain known as the "ILSBlockchain."

For the note issuance, ILSBlockchain replaced the traditional role of a settlement system such as Euroclear or the Depository Trust Company (DTC).

The transaction was an asset-backed securitization of a hurricane reinsurance contract where Dom Re issued $14.8 million in principal-at-risk participating notes to six investors. Solidum Re currently acts as the paying agent and common depository of the permanent global note, as well as the blockchain permission grantor and sponsor.

A New Participant

A new participant was recently cleared by the trustee, Artex Risk Services (Artex), to join the ILSBlockchain by performing the required know-your-client (KYC)/anti-money-laundering (AML) procedures. With its own newly created node, the new participant paid US dollars (USD) into the trust account with Artex, who credited USD to the participant's wallet on their node.

The Next Stage

  • Solidum Partners AG, on behalf of one of its funds, set up a trade on the ILSBlockchain wishing to sell some of its holdings.
  • In setting up the trade, the ILSBlockchain software produced a cryptographic key representing the trade.
  • Solidum Partners then "advertised" the trade, complete with the key required to execute the opposing side of the trade, on a platform set up and run by Solidum Re.
  • This triggered emails to be sent to all registered participants on the ILSBlockchain.

Closing the Deal

Participants who wished to react to the offer were able to download the key from the advertising platform and enter it into their node on the ILSBlockchain where they could "decode" the offer. A participant who held sufficient USD was then able to do the following.

  • Directly execute the trade on the ILSBlockchain within a single "atomic" transaction
  • Debit their wallet with the required USD assets
  • Credit their wallet with the notes

Conversely, within the same transaction, the ILSBlockchain was able to do the following.

  • Debit the Solidum fund's wallet of the offered notes
  • Credit the wallet with the USD

Solidum Re Director Cedric Edmonds said the trade was created, executed, and confirmed on the ILSBlockchain in a matter of minutes.

Mr. Edmonds continued, "The transaction was simpler, quicker and more efficient than a standard DTC/Euroclear trade. We were delighted at how everything worked effortlessly and flawlessly as planned. Solidum can now, via the trustee, arrange for the USD assets its fund now holds on the ILSBlockchain to be wired to its fund's 'real-world' custody account."

With or Without a Broker

Mr. Edmonds said, "The trade was done without the use of a bank or a broker-dealer and no fees were involved. It was also performed perfectly anonymously without direct contact between the buyer and seller, but safe in the knowledge that all participants have been through the required KYC/AML performed by a regulated entity."

According to We Are Guernsey, trades on the ILSBlockchain can equally be performed using a broker-dealer if desired, and nodes on the ILSBlockchain can equally be held by custody banks to hold securities on the ILSBlockchain in custody for their clients.

December 15, 2017