Britain has appointed six banks to manage its first digitally native government bond pilot, with issuance expected by the first quarter of 2027. The Treasury announced the appointments on 6 October, allowing preparations with potential investors to begin.
Barclays, HSBC, Lloyds, Morgan Stanley, NatWest and RBC Capital Markets will act as joint lead managers. Their responsibilities include underwriting, investor engagement and distributing the bond when it is issued, according to the Treasury announcement.
Economic Secretary Lucy Rigby said: “The appointment of Lead Managers marks an important step as we work towards issuance early next year.”
The Digital Gilt Instrument, known as DIGIT, will test how distributed ledger technology can support the issuance and subsequent operation of a government bond.
What is a digital gilt?
A gilt is a UK government bond: investors lend money to the government under the instrument’s repayment terms. The Debt Management Office’s glossary explains that conventional gilts carry interest payments and principal repayments fixed in cash terms.
DIGIT changes the infrastructure used to record and process the security. Distributed ledger technology allows records to be shared and updated across a network, rather than requiring every participant to reconcile its own separate record.
Settlement is the completion of a transaction through the transfer of the security and payment. DIGIT is designed to settle on its digital ledger and will be short-dated, meaning it has a relatively short life before repayment. It remains separate from the government’s main debt management programme.
The Treasury selected HSBC as platform provider in February, following a competitive tender. HSBC identified its Orion platform as the technology supporting the pilot. Ashurst was appointed to provide legal services.
That earlier announcement also set out an ambition to give a wide range of participants access and support a secondary market, where investors trade securities after their initial issue.
Efficiency gains still need to be tested
DIGIT will operate within the Digital Securities Sandbox, overseen by the Bank of England and Financial Conduct Authority. This is a regulated environment for live financial transactions using developing technology.
The Bank says faster, cheaper processes after a trade could produce savings for banks, investment firms and pension funds if the technology is successfully implemented. Those are potential benefits, rather than results already demonstrated by DIGIT.
It also warns that these technologies remain untested at significant scale in important financial markets. Activity inside the sandbox is therefore subject to limits, with firms able to expand as they meet regulatory requirements.
Participants must consider operational risks as well as possible savings. The Bank notes that sandbox entrants do not immediately have to meet the same resilience standards as fully authorised financial market infrastructure.
The Treasury’s latest announcement does not specify the pilot’s issue size, interest rate or exact repayment date. Those terms, and the eventual investor response, will provide a clearer basis for assessing the experiment when issuance approaches.
