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Empowering Investors with Fractional Bond Options

Sep 27, 2023

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Citi's groundbreaking partnership with BondbloX underscores the rising prominence of fractional bonds in reshaping the global investment landscape.

What are Fractional Bonds?

Fractional bonds (see Digital bonds), as the name suggests, allow investors to own a fraction of a bond rather than the entire bond. This concept is similar to buying shares in a company. Instead of purchasing an entire bond, which might be cost-prohibitive for many retail investors, they can buy a fraction of it. This democratizes bond trading, making it accessible to a broader audience.

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The concept of fractional bonds is still relatively new, but it's gaining traction rapidly. Platforms like BondbloX are at the forefront of this movement. BondbloX, which started as BondEvalue, has made significant strides in simplifying bond investing. Their platform allows investors to track and trade bonds electronically, much like stocks. This approach not only makes bond trading more accessible but also integrates the advantages of equities trading into the bond market.

Citi and BondbloX's IRL Partnership

One of the most notable partnerships in the fractional bond space is between BondbloX and Citi. As we've seen from the recent announcement, Citi has become the first digital custodian participant of the BondbloX Bond Exchange (BBX). This collaboration provides Citi’s clients and other BBX participants with access to digital custodial services, a broader reach to the global bond market, and immediate atomic settlement at the point of trade execution.

Furthermore, BondbloX's platform is regulated by the Monetary Authority of Singapore (MAS) as a Recognised Market Operator. They have the backing of significant players like Citi and MassMutual Ventures and have global custodians like Citi and Northern Trust supporting their platform.

Being regulated by a reputable financial authority ensures that the platform adheres to stringent standards, ensuring the safety and security of its participants.  Citi's involvement as a digital custodian participant ensures that the bonds traded on BBX, whether fractionalized or full-sized, are securely held and settled. This move towards digital custody is seen as a significant step in the transformation of the bond market, making it more transparent and accessible.

Citi's proprietary digital custody technology is scalable and designed to provide settlement and custody services for clients investing in assets issued on permissioned blockchain networks and digital financial management information systems (FMIs). This indicates a move towards a more secure and regulated environment for digital assets, including fractional bonds.

The Future of Fractional Bonds

The future looks promising for fractional bonds. As technology continues to advance and more platforms adopt this model, we can expect to see a surge in the popularity of fractional bonds. The benefits are clear: increased accessibility, the potential for diversification, and the ability to tap into the bond market without significant capital.

Moreover, the introduction of digital tokens and blockchain technology in the financial sector, as seen with Citi's recent pilot program, indicates a potential convergence of traditional finance with modern technology. This could further boost the adoption and popularity of fractional bonds.

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