The canton of Zurich has issued its first bond that can be settled with digital central bank currency (CBDC) through the SIX Digital Exchange (SDX). The issuance is part of the Swiss National Bank's (SNB) Wholesale CBDC pilot project.
Beginning of November, the SNB announced the launch of the first experimental operation with a real CBDC digital franc. Existing SDX member banks, including Banque Cantonale Vaudoise, Basler Kantonalbank, Commerzbank, Hypothekarbank Lenzburg, UBS and Zürcher Kantonalbank, are participating in the collaboration. A week ago, BKB issued a digital bond for the canton of Basel, which can be settled in CBDC francs, and now the canton of Zurich is following suit with similar terms.
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100 million CHF digital bond of the canton of Zurich
The CHF 100 million digital bond with a maturity of 11 years and a coupon of 1.45% is a partial refinancing of an expiring bond. Transactions were lead-managed by Zürcher Kantonalbank, together with UBS and Raiffeisen Switzerland, under the following terms and conditions:
- Amount: CHF 100 million (with an option to increase)
- Coupon: 1.45%
- Issue price: 100.456%
- Maturity: 11 years, until 1 December 2034
- Yield to maturity: 1.405
- Spread (MS): -3 BP
- Valor: CH1306117073
- Rating: AAA (S&P)
- Listing: SDX & SIX, from 1 December 2023
The purpose of the issuance is to support the development of innovative financial market infrastructures in Switzerland. Digitalisation is a strategic focus of the cantonal government. The bond will be tradable with the SNB's wholesale CBDC franc on the SIX Digital Exchange from 1st of December.
Tokenised bonds on a private blockchain platform
Towards the end of 2021, the Swiss Financial Market Supervisory Authority (FINMA) formally approved the SIX Digital Exchange (SDX) to operate an exchange and central depository for digital assets. This was the first approval for DLT-based infrastructures in the Swiss financial market. The approval enabled the trading of digital securities in the form of tokens and their integrated settlement. This laid the foundation for the SNB's digital central bank currency (CBDC) and the digital bonds of the cantons of Basel and Zurich.
However, the SDX platform differs from protocols on public blockchain platforms (e.g. DeFi). As a tokenised security on a limited ("permissioned"), regulated DLT trading system, the digital bond of the canton of Zurich is not accessible to everyone. This middle ground is designed to take advantage of advances in blockchain technology, while remaining within the regulated financial system.
