THE INTERNATIONAL DEBT CAPITAL
MARKETS HANDBOOK
2023

26th Edition

Opportunities for digitising debt
capital markets and applications
for developing countries
By Akinchan Jain and Michael Bennett, World Bank

Rapid advancements in technology have transformed the way we dobusiness in every industry, ranging from energy to healthcare to travel toinfrastructure. The capital markets are no exception. The trading of mostliquid capital markets products, such as futures, equities, and foreignexchange, has been revolutionised over the past few decades by digitaltechnologies.

1These products now trade almost entirely on electronic

Against this backdrop, two emerging developments –exchanges or other digital venues, such as single andthe digitisation of workflows using technologies such as

multi-dealer pools and platforms. Each advance in the

distributed ledger technology (DLT) and the exploration

digital trading of these products has led to increasedby central banks of digital currencies (CBDC) hold thevolumes, greater transparency, and decreased costs perpotential to not only drive efficiencies in debt capitaltrade. The COVID-19 pandemic has only served tomarkets, but also serve as a template to increase

accelerate this trend. If Gordon Gekko wanted to buy atransparency and lower transaction costs in middle-large block of Bluestar Airlines today, he would almost

and low-income countries.

certainly trade electronically through a dark pool.
It is striking, in that context, to consider how far behind isDebt capital markets today

the debt side of the capital markets in terms of digitisation.

Digitisation of capital markets instruments has generally

Despite the hundreds of millions of dollars that have been

worked best with highly standardised products, like public

spent by dealers on expensive new technologies, the way

equities. Bonds, however, are intrinsically heterogenous. A

many bonds are issued, settled, and serviced over their life

single issuer can issue hundreds of different bonds, every

has stubbornly remained the same as it was thirty years ago.

single one of them with varying characteristics related to

While a significant part of the cash trading of on-the-run, G-20

currency, size, maturity, coupon structure, yield, and so forth.

government bonds is done electronically, the digitisation of

The process of issuing a bond is in equal parts science and art,

credit products lags far behind. And, within credit, the tradingwith issuers and underwriting banks using several data pointsof structured products and most emerging market currency

in primary and secondary markets and supplementing it withbonds is truly a relic of an earlier time, having remained

their knowledge and experience to determine the appropriate

virtually untouched by technological advancements.

market, size, timing, and pricing for a new issuance.

I INTERNATIONAL DEBT CAPITAL MARKETS HANDBOOK

Moreover, post issuance, the process is largely manual andCBDCs are simply a digital version of cash—the physicalfragmented. The same data are manually re-created andmoney issued by central banks. CBDCs are like existing

reconciled across multiple systems and legal documents

online payment platforms, with one key difference: moneyand by several stakeholders including the underwriting

held on a CBDC app or website is equivalent to a deposit atbanks, the paying and calculation agent/s, the domestic

the central bank. CBDCs can be operated on DLT under

and/or international central securities depositories

which only permissioned institutions like commercial banks(ICSDs), custodians, investors, third parties such as

can join and validate transactions.

Bloomberg, and the issuer itself.
This process of re-creation and reconciliation continues
over the entire life cycle of the issuance – at every interest
payment and corporate action (such as puts or calls) andall the way to final redemption on maturity date. These
multiple checks and records ensure the accuracy of data.
Indeed, the market has functioned well, and it is rare for anissuer to distribute incorrect or unscheduled payments toinvestors. The use of multiple systems and processes,
however, means that high levels of accuracy come at the2expense of cost and efficiency.
Reconciliation aside, the processing of payments itself is inmany ways complex and opaque and can take several
hours, especially in the case of cross border payments.
Consider the case of an investor that does not see theiraccount credited with the expected interest amount. Even if
the issuer has taken the necessary steps in a timely
manner, problems at any of the intermediary parties suchas the issuer’s correspondent bank, the paying agent, theICSD, the custodian, or the correspondent bank of theOpportunities for digitising debt
capital markets
While many of the stakeholders, including banks, paying
agents, registrars, and clearing systems have a unique andnecessary role to play, the emergence of new technologies,
including DLT and the use of CBDC holds the potential tointroduce efficiencies and transparency in processes andworkflows involved in the servicing of debt securities.
Firstly, technology can facilitate the creation of a digitaland golden source of data upfront in the process.
With every participant in the chain operating off thesame data source, there is no need for multiple checks
and reconciliations, reducing processing times andoperational risk.
Secondly, technology-enabled online and digital platforms
can create process efficiencies and enable streamlined
communication with market counter parts on trade
documentation, ISIN generation, etc.

investor can create a bottleneck in the entire payment

Thirdly, the use of CBDCs can significantly cut down

process. Importantly, it can be hard for any single party toprocessing times for domestic and cross border payments,

know which step in the payment chain is resulting inleading to faster settlement, and thereby reducing credit

delays, and resolution requires continuous follow-ups withrisk in the markets. Finally, the combined use of DLT andeach of the many stakeholders.

CBDC can improve market transparency by, for example,
allowing permissioned parties such as issuers and other

DLT and CBDC – the basics

investors to know the identity of the holders of specificsecurities.

DLT involves the use of independent computers (referred toIssues experienced by participants in emerging marketas nodes) to record, share and synchronise transactions incurrency debt issuances is a case in point. With multiple

their respective electronic ledgers (instead of keeping dataintermediaries involved, payments of interest and principal

centralised as in a traditional ledger). One common type ofamounts from an issuer to investor go through several

DLT is Blockchain, which organises data into blocks thatsteps. Sanctions or market liquidity impacting any of these

are chained together in an append-only mode.

intermediaries can delay or block the process.

I INTERNATIONAL DEBT CAPITAL MARKETS HANDBOOKThe use of CBDC and digital platforms can not only makeIn addition, there are a multiplicity of other legal

the process faster but also help track payments across all

uncertainties. How, for instance, do investor confidentiality

steps in the payment chain. Another use case for DLT andregulations apply in a DLT based market where investors

CBDC is the management of legacy floating rate notes

may all be known to each other? While some domestic(FRNs) that reference LIBOR. Fallback language on manymarkets already require such disclosure in theFRN documents does not lend itself to an automaticconventional market infrastructure, this is currently not thetransition to alternative reference rates such as SOFR.

case in most markets across the globe.

In the absence of clear and transparent information on andability to directly contact beneficial owners, issuers have
had to follow costly, complex, and cumbersome exchange
or consent solicitation offers - in some cases withsub-optimal results.

Applications for developing countries
Very few developing countries have a well-functioning debt
capital market. To the extent they exist at all in developing
countries, they are generally very small, highly illiquid anddominated by government issuances. As a result, economic

Risks

growth in these countries is often overly reliant on bank

As with any new technology, digitisation of debt capital
market workflows carries risks, all of which will require

financing, which restricts the total amount of credit
available to local businesses. And the path to creating awell-functioning debt capital market is not easy, due to thedetailed analysis and mitigation. Many of these centre

significant amount of market infrastructure that is required,around technological and legal issues. For a start, thefrom the establishment of central clearing systems,

choice of technology, whether based on DLT, and thesecurities custodians, calculation agents, and rating

various flavours of these, requires a careful review. Choiceagencies to the development of a securities trading andof technology will depend in part on data ownership,risk-taking culture at local banks.

security, cost, and maintenance, and must be considered in
the context of scalability and sustainability, and impact on
the environment.
On the business side, various traditional (banks and CSDs)
and new (fintech firms) market participants are reported tohave been exploring some of these solutions andchallenges. Any solutions must comply with domestic andcross-border legal and regulatory standards. On theAkinchan Jain

regulatory side, several governments and central banks arein various stages of research, review, and pilot projects todevelop laws and policies around these issues.

Michael Bennett

Akinchan Jain
Head of Asset and Liability Operations

There are, as of yet, unanswered questions related to how

World Bank

existing securities laws apply to entirely new forms ofemail: ajain@worldbank.org

securities issuance. For example, one of the foundational
Michael Bennett

principles of securities law is that the applicable law isdetermined based on the market where the securities are

Head of Market Solutions and Structured Financeissued. However, in a borderless digital environment,
determining the jurisdiction of issuance of a security may
not be an easy matter.

I INTERNATIONAL DEBT CAPITAL MARKETS HANDBOOKWorld Bank
email: mbennett1@worldbank.org

3

Digitisation holds the potential to permit developing
countries to leapfrog the needs for some of this market
infrastructure. Just like mobile phones have allowed somedeveloping countries to skip building fixed-line technology
and move straight to mobile technology, DLT and CBDC
could allow a developing country to develop a local debt
market relatively quickly and thereby transform the way its
businesses are financed.

Banks have spent enormous sums of money over the past
several decades digitising all areas of their operations.
Despite that, many areas of the debt capital markets lookvery much like they did at the start of the millennium. In
comparison to many other areas of finance that have beenwholly revolutionised by technology, aspects of the debt
markets remain quaint and old-fashioned.

Imagine for example, a future in which farming
cooperatives in remote rural areas, which currently arecompletely cut off from bank lending in many developing
countries, could directly access small-scale debt financingthrough digital issuances that investors could purchasethrough their mobile phones.
Use of DLT and CBDC in the digitisation of domestic capital
markets can provide the template for, and spur,development in middle- and low-income countries in4Conclusion

myriad other ways as well. For example, recent geopoliticalevents in conflict-ridden countries have highlighted theneed for access to alternative payment channels that canbe deployed in emergency situations for project and/oradministrative payments.

Traders, often using fixed phone lines, agree on trades,
and those trade terms are then input into multiple systems
all along the settlement chain. Bond traders, who wereonce lionised as “masters of the universe” in the 1987
novel Bonfire of the Vanities, now look more like dinosaurs
in some respects.
But increasing digitisation of the bond markets appears
inevitable. What exactly are the right solutions remains
unclear and much work will need to be done to ensure thechosen technologies provide sufficient safety, scalability,and sustainability. Laws and regulations will also need tobe adapted and coordinated to provide the clarity andconsistency market participants will need to embrace thesechanges.

Similarly, according to a recent paper published by theBank for International Settlements, central banks are
considering how retail CBDC may help support financial
inclusion. Much of the focus has been on ensuring thattechnology is low-cost and interoperable (enabling
non-bank payment service providers) and facilitates

Regardless, the timing is ripe for innovations like DLT andCBDC to support the digitisation of debt capital markets andusher an era of increased efficiency and market transparency.
* The	findings, interpretations and conclusions expressed herein arethose of the authors and do not necessarily reflect the views of theWorld Bank or its affiliated organisations.

enrolment and education (via simplified due diligence andelectronic know your customer).
Together, these features can address a range of existing
barriers to financial inclusion. Its use in debt capital

Contact us:
World Bank

markets with a targeted group of sophisticated and1818 H. Street NW

accredited market participants can help central banks andWashington, DC 20433, US

regulators test and resolve kinks in the use of both

web: www.worldbank.org

wholesale and retail CBDC.

I INTERNATIONAL DEBT CAPITAL MARKETS HANDBOOK