By
Bhushan Akolkar
April 12th, 2024
The first transactions within the pilot included fund subscriptions and redemption of the tokenized fund represented as a smart contract. Notably, UBS used its own UBS Tokenize platform to conduct the transactions.
Swiss multinational investment bank and financial services company UBS Asset Management (SWX: UBSG) has launched the first pilot of a tokenized Variable Capital Company (VCC) fund – a new legal entity form for all types of investment funds in Singapore. The fund is a part of the Project Guardian initiative run by the Monetary Authority of Singapore (MAS).
The Project Guardian aims to drive faster settlement, greater operational efficiency, and more effective cross-border distribution for capital market instruments on digital asset networks. The pilot launched by UBS seeks to enhance fund distribution and facilitate improved secondary market trading of VCC fund shares, thereby reaping industry-wide operational efficiencies.
Thomas Kaegi, Head of UBS Asset Management, Singapore & Southeast Asia, commented:
“This is a key milestone in understanding the tokenization of funds, building on UBS’s expertise in tokenizing bonds and structured products. Through this exploratory initiative, we will work with traditional financial institutions and fintech providers to help understand how to improve market liquidity and market access for clients.”
The first transactions within the pilot included fund subscriptions and redemption of the tokenized fund represented as a smart contract. Notably, UBS used its own UBS Tokenize platform to conduct the transactions.
Further, UBS is planning to expand its partnership network for the project as well as explore other investment strategies in future live pilots.
What Is Project Guardian?
Back in May 2022, the Monetary Authority of Singapore (MAS) announced Project Guardian – an initiative to facilitate “best practices and technical standards” in the financial ecosystem and test the feasibility of applications in asset tokenization and DeFi while managing risks to financial stability and integrity. In June this year, the Japan Financial Services Authority (FSA) joined the project.
Among the objectives of the project are industry pilots with traditional financial institutions and FinTechs to understand opportunities and risk areas, safe development of the ecosystem using industry experiments and research as a reference, and establishing a proper governance model for the industry.
By now, a number of pilots have been launched. UBS VCC fund is one of them. Earlier, a technical pilot on the issuance and distribution of a digitally native structured product was completed by HSBC, Marketnode, and UOB. As we have reported, this pilot proved that the structured product chain could offer faster issuance and settlements at lower costs.
Another pilot has been completed by DBS Bank, JPMorgan, and SBI Digital Asset Holdings. The organizations mentioned conducted foreign exchange and government bond transactions against liquidity pools comprising tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY), and Singapore Dollar (SGD). A live cross-currency transaction[3] involving tokenized JPY and SGD deposits was successfully conducted.
One of the pilots being carried out nowadays within Project Guardian is a repurchasing agreement (repo) with natively issued digital bonds. DBS Bank, SBI Digital Asset Holdings, and UBS AG are in charge of the test. This part of the project is about greater flexibility, operational efficiency, faster settlement, and increased efficiency for cross-border distribution and settlement of capital market instruments on digital asset networks.