A Treasury bond settled in minutes: BNY moves to tokenization

From tokenized bond to financing. BNY announced on October 13 that it had completed a short-term financing operation using a tokenized representation of a U.S. Treasury bond in collaboration with Citadel Securities. Purchased on Tradeweb, the bond was settled in minutes before being used as collateral in an overnight repo. According to BNY, this is the first use of tokenized assets on a major triparty repo platform.

Key points of this article:

• A two-year U.S. Treasury bond was represented on BNY's private digital ledger and settled in minutes.
• Citadel Securities then used it as collateral to obtain liquidity from BNY in an overnight financing operation.
• The bank plans to develop its digital currency and tokenized deposit capabilities while extending the hours of its traditional infrastructures.

A tokenized bond moves from purchase to short-term financing

The operation begins with Citadel Securities acquiring a two-year U.S. Treasury bond through BNY on the Tradeweb platform. A tokenized representation of the bond is then recorded on the bank's private digital ledger.

The settlement occurs in minutes, compared to a standard T+1 cycle, which is the next business day after the transaction. Once this step is completed, Citadel Securities mobilizes the bond as collateral in a repo operation, or overnight repo, with BNY providing the liquidity in return.

The repo allows a financial actor to obtain financing by temporarily transferring securities, with a commitment to repurchase. In its triparty form, an intermediary ensures the management of collateral and the settlement of the operation.

The interest of this transaction lies in the sequence of steps: the same asset moves from purchase to settlement, then to its use as collateral. Tokenization thus plays a role in an institutional financing process, beyond merely creating a digital representation of the bond.

BNY has not disclosed the amount of the operation. It relies on its private infrastructure, with no announced use of a public blockchain or stablecoin. BNY and Citadel Securities finalized a first transaction of T-Bonds on the blockchain -- Source: Account X

BNY prepares for faster settlements and extended hours

For BNY and Citadel Securities, the goal is to facilitate the movement of collateral between different market operations. A bond available more quickly after its acquisition can be mobilized sooner to obtain liquidity.

However, the speed of settlement alone is not sufficient to create a continuously open market. Payment, custody, and collateral management infrastructures must also be able to operate within compatible time frames.

BNY therefore plans to add digital currency and tokenized deposit capabilities to facilitate settlements and financing on the digital ledger. The bank also intends to extend the hours of its traditional U.S. settlement and overnight repo platforms, aiming to cover more European and Asian sessions by 2027.

This operation illustrates a concrete evolution of tokenization: digital securities are beginning to be integrated into existing financing mechanisms. For institutions, the challenge is to reduce the time between holding an asset and mobilizing it as collateral while maintaining the infrastructures and procedures they rely on.

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