Smart bonds can transform the life cycle of debt instruments and have the potential to disrupt debt capital markets. This digitalization of bonds may enhance process efficiencies and liquidity, reduce costs, simplify and democratize capital raising for issuers, and create a broader investable landscape. For over three centuries, bonds were issued as paper certificates. However, as the volume of trading grew, companies became inundated with paperwork. In 1973, the Depository Trust Company (DTC) was created to address the mounting paperwork and security issues. Paper certificates were vulnerable to loss, tax evasion, money laundering and theft such as a real-life bearer bond heist. During the London City bonds robbery of 1990, thieves stole 291.9 million British pounds (equivalent to 848.8 million pounds today), highlighting the risks associated with physical bearer bonds. As a result, the use of physical bearer bonds declined in favor of electronic records. Then in 1995, the Securities and Exchange Commission (SEC) released paperless rules, ending the era of paper securities and introducing the Depository Trust & Clearing Corporation (DTCC), a central depository for the custody of all securities. This change ushered in faster middle and back office processes and greater protections in the securities market.
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