2025.2.10
1st Digital Bond Market Forum (DBMF) in Seoul

SESSION 4: Panel Discussion

Bridging Borders: Leveraging Digital Platforms for Asian Bond Market Integration

Moderator: Satoru (Tomo) Yamadera, Advisor, Asian Development Bank

Forward: Suk Hyun, Professor, Yonsei University, Chair of DBMF (5 min)

Introductory Presentation: Shigehito Inukai, Consultant, Asian Development Bank (15 min)

Panelists:

Suk Hyun, Professor, Yonsei University, Chair of DBMF

Boon-Hiong Chan, Industry Applied Innovation Lead, Deutsche Bank

Ken Kawai, Partner, Anderson Mori & Tomotsune

Changmin Chun, Associate Professor, SNU College of Science and Technology

Georgina Lok, Division Head of Market Development, Hong Kong Monetary Authority

Next Step: Satoru (Tomo) Yamadera, Advisor, Asian Development Bank

Forward by Professor Hyun Suk, Yonsei Univ. 

Here are my initial thoughts:

• Since the Asian financial crisis, we have been committed to developing both national and regional bond markets through the Asian Bond Markets Initiative (ABMI). To standardize and harmonize Asian bond markets, we established the ASEAN+3 Bond Market Forum (ABMF) and introduced AMBIF bonds to facilitate cross-border bond issuance and trading. 

• Over the past 15 years of ABMF discussions, we have made significant progress in regional financial cooperation. However, despite years of discussions, true market integration remains slow, and market fragmentation still persists.

• An intra-regional perspective is crucial for advancing professional bond markets within ASEAN+3. Given the challenges of integration, we must reaffirm our objectives with ABMF and explore how Distributed Ledger Technology (DLT) and blockchain solutions can help us navigate regulatory disparities and operational hurdles across the region. By leveraging these technologies, we can work toward establishing a regional digital platform that facilitates seamless cross-border transactions.

• Today's DBMF discussions have been encouraging, and I look forward to collaborating with all of you to achieve these shared goals.

• セッション 4 のタイトルは「国境を越える: デジタル プラットフォームを活用したアジア債券市場統合」です。私の最初の考えは次のとおりです。

• アジア金融危機以降、私たちはアジア債券市場イニシアチブ (ABMI) を通じて国内および地域の債券市場の発展に取り組んできました。アジアの債券市場を標準化し調和させるためにASEAN+3 債券市場フォーラム (ABMF) を設立し、国境を越えた債券の発行と取引を促進するために AMBIF 債券を導入しました。

• 過去 15 年間の ABMF の議論を通じて私たちは地域の金融協力において大きな進歩を遂げてきました。しかし、長年の議論にもかかわらず、真の市場統合は依然として遅く、市場の断片化は依然として続いています。

• ASEAN+3 内でプロフェッショナル債券市場を発展させるには、地域内の視点が不可欠です。統合の課題を考えると、私たちは ABMF の目的を再確認し、分散型台帳技術 (DLT) とブロックチェーン ソリューションが地域全体の規制の不均衡と運用上の障害を乗り越えるのにどのように役立つかを検討する必要があります。これらの技術を活用することで、シームレスな国境を越えた取引を促進する地域デジタルプラットフォームの構築に向けて取り組むことができます。

• 本日の DBMF の議論は励みになるものであり、皆様と協力してこれらの共通の目標を達成することを楽しみにしています。

Introductory Presentation: Shigehito Inukai, Consultant,
Asian Development Bank

1. Legal Certainty in Digital Assets (DAs):
Limited Regulatory Framework in ASEAN+3

Legal certainty, or stability, is a key principle ensuring laws are clear, transparent, predictable, and consistently enforced. It fosters trust in the legal system for individuals and businesses to plan their actions. Legal certainty is vital for an effective legal system, balancing adaptability with the need for stability. Key aspects of legal certainty include:

1. Clarity and Predictability: Laws should be easily understood, allowing individuals to anticipate legal consequences.

2. Consistency in Application: In similar cases, legal rules must be uniformly applied to maintain trust.

3. Protection of Legitimate Expectations: People should rely on stable laws, and changes should be communicated clearly and with necessary steps.

4. Rule of Law: Legal certainty is tied to the rule of law, which seeks to prevent the arbitrary use of power.

Only a few jurisdictions have legal provisions. Legal certainty is critical for digital assets. Now, raising questions about applicable laws and enforcement.

Concept of Digital Assets: Complexity in Digital Assets Discussion 

• There are many different wording and concepts with different emphases on different characteristics of digital assets.

• There seem to be no clear, universally applicable definitions.

• It is necessary to identify what are referred to as digital assets.

We recommend you refer to ADB CSIF Brief Series No.3,
“An Introduction to Digital Assets,”
issued in August 2024.

2. Book-entry Bonds VS. Security Tokens? 

• The bond market currently operates with a CSD-based book-entry bond system, which some consider costly. Others say existing laws are unnecessary for security tokens. However, integrating security tokens into AMBIF Bonds presents serious challenges, as security tokens lack the proven legal certainty of book-entry systems.

• DBMF will focus on establishing a legally stable tokenized corporate bond market in the region. To reach this objective, leveraging the valuable existing legal framework from traditional book-entry bonds seems crucial while connecting them to the digital AMBIF market. 

• Essentially, this involves reimagining the business model for a new system that maximizes the use of the existing laws and trading rules supporting the traditional bond market while incorporating digital technology.

3. Security Tokens VS. Tokenized Securities? 

A recent Global Financial Markets Association (GFMA) report categorizes DLT (Distributed Ledger Technology) --based securities** into "Tokenized Securities" and "Security Tokens." This is relevant to our DBMF discussion, so we would like to introduce it here briefly.

• Tokenized Securities: Securities issued and custodied traditionally in compliance with existing laws and regulations and represented on DLT infrastructure. They have the same legal characteristics as traditional book-entry securities and operate under existing regulatory frameworks. An example is  UBS AG’s digital bond, which is dual listed on Swiss SIX and SDX.

• Security Tokens: DLT-native securities issued directly on DLT infrastructure. They often operate under new regulatory frameworks and have different characteristics from traditional securities.

*:  https://www.gfma.org/policies-resources/gfma-publishes-report-on-impact-of-dlt-in-global-capital-markets/  and

https://www.gfma.org/wp-content/uploads/2023/05/annex-1-gfma-proposed-approach-for-the-classification-and-understanding-of-digital-assets.pdf 

**: This category encompasses different regulated instruments from a legal perspective, which may attract different regulatory treatment amongst themselves and across jurisdictions. 

4. Reference: Legal Certainty for Book-entry Securities’ Transfer and Pledge/Collateral Transactions in Japan 

In Japan, the electronic records in transfer account ledgers at a central securities depository institution (CSD) and account management institutions (intermediaries) become the legal requirements for

1. the effectiveness of the securities rights’ creation and extinguishment, 

2. the effectiveness of transfer and pledging of collateral of book-entry account rights, 

3. the effectiveness against third parties and 

4. bona fide (innocent) acquisition. 

In the case of security tokens, in many cases, the legal certainty related to the most or all of the above four points cannot be met due to the lack of relevant legislation.

5. Reference: Legal Uncertainty for Security Tokens in Japan 

• In Japan, so-called trust schemes, which use trust beneficiary rights regarding the rights of securities involving trust banks, are often used to reduce the legal uncertainty associated with security tokens. 

• However, this method does not provide sufficient legal certainty that existing book-entry bonds involving CSDs have. 

• In addition, the application of this method is not recommended and not suitable for cross-border transactions.

6. Importance of Legal Certainty and Some Measures to Ensure Them 

Many economies are beginning to define digital assets (DA) within their legal frameworks. These DAs have various functions, leading to discussions on suitable regulations. Concerns come from a lack of legal certainty and stability regarding their treatment in private law and regulatory structures.

• In several jurisdictions, security tokens do not have the same level of legal certainty as traditional book-entry securities, especially when they are not well-regulated. Legal certainty cannot be considered sufficient if the laws governing their creation, transfer, and associated rights are unclear.

  •  For example, a CSD in the ASEAN-3 region joining a closed (non-public)  blockchain consortium as one of the nodes and using a smart contract could extend relevant laws to tokenized securities like book-entry corporate bonds.

• Thus, it may be possible that tokenized securities could be structured as linked assets* under existing laws and principles related to domestic corporate bonds and CSDs that apply to traditional book-entry bonds.

*: Refer to Principle 4 of the UNIDROIT PRINCIPLES ON DIGITAL ASSETS AND PRIVATE LAW 2024 at

    https://www.unidroit.org/wp-content/uploads/2024/01/Principles-on-Digital-Assets-and-Private-Law-linked-1.pdf  

7. A Possible Approach 

Today marks the launch of the Digital Bond Market Forum (DBMF), aiming to establish an integrated tokenized corporate bond market for professional investors across the region to foster economic and social growth.

1. How about assessing each economy's current legal frameworks for book-entry bonds, including how the rights are attached to securities? (For that, we may refer to The 2017 UNIDROIT Legislative Guide on Intermediated Securities*)

2. Then, discuss leveraging existing laws with digital (DLT-blockchain) technology while addressing potential legal and operational challenges.

3. Some agreements may require thorough verification and approval from relevant regulatory authorities; in some cases, it may be possible to ensure whether or not tokenized corporate bonds have comparable legal certainty to traditional bonds without needing a new legal framework.

Let's embark on this journey with DBMF together!

*: https://www.unidroit.org/wp-content/uploads/2021/06/LEGISLATIVE-GUIDE-English.pdf 

Security Tokens and Tokenized Securities under Japanese Law
(For Session 2 and 4)

Ken Kawai  

Partner, Anderson Mori & Tomotsune

Legal advisor, Japan Security Token Offering Association

Session 4 のパネルディスカッションの中で発表を行うべく、Hyun Suk教授が準備していた発表予定内容の一部を、以下に記載します。
Below is a portion of the presentation that Professor Hyun Suk had prepared for the panel discussion in Session 4.

3. Key DBMF Action Points

1. Standardization and Legal Framework Development

•Develop common guidelines for digital bond issuance, trading, and settlement to address legal uncertainties and regulatory fragmentation.

•Define digital bond standards (Digital AMBIF) for DLT-based bond issuance, smart contract implementation, and settlement mechanisms to enable cross-border compatibility.

2. Infrastructure and Market Development

•Establish an interoperable DLT infrastructure that allows seamless cross-border transactions.

•Facilitate easier investor access across ASEAN+3 through common trading protocols and integration with existing exchanges.

3. Addressing Regulatory Fragmentation: The Role of a Cross-Border Sandbox

• Cross-Border Regulatory Sandbox for ASEAN+3 would provide a structured environment for financial institutions, technology providers, and regulators to experiment with digital bond issuance, trading, and settlement using Distributed Ledger Technology (DLT) and blockchain.

•This framework would allow for controlled, risk-mitigated testing of innovative financial products and services under regulatory oversight before full-scale implementation.

•Insights from sandbox testing should contribute to standardized ASEAN+3 guidelines for digital bond issuance, reducing regulatory fragmentation across the region.

1. 標準化と法的枠組みの整備

デジタル債券の発行、取引、決済に関する共通ガイドラインを策定し、法的不確実性と規制の断片化に対処する。

DLTベースの債券発行、スマートコントラクトの実装、決済メカニズムに関するデジタル債券標準（Digital AMBIF）を定義し、国境を越えた互換性を確保する。

2. インフラと市場の開発

シームレスな国境を越えた取引を可能にする相互運用可能なDLTインフラを構築する。

共通の取引プロトコルと既存の取引所との統合を通じて、ASEAN+3全体で投資家のアクセスを容易にする。

3. 規制の断片化への対処：クロスボーダー・サンドボックスの役割

ASEAN+3向けのクロスボーダー規制サンドボックスは、金融機関、技術プロバイダー、規制当局が分散型台帳技術（DLT）とブロックチェーンを用いたデジタル債券の発行、取引、決済を実験するための構造化された環境を提供する。

この枠組みにより、本格的な導入に先立ち、規制当局の監督下で、革新的な金融商品やサービスを、管理されたリスク軽減下でテストすることが可能になります。

サンドボックステストから得られる知見は、ASEAN+3におけるデジタル債券発行に関する標準化ガイドラインの策定に貢献し、地域全体の規制の分断を緩和すると考えられます。