Mansion House: HMT policy paper with update on the digital gilt instrument (DIGIT) pilot

HM Treasury (HMT) has published a policy paper on its update on the digital gilt instrument (DIGIT) pilot. The paper follows the Preliminary Market Engagement Notice (PMEN), which closed in April and which was the first stage of the procurement process. The pilot, part of the UK's broader strategy to explore distributed ledger technology (DLT) in sovereign debt issuance, seeks to: (i) enable the UK government to explore applications of DLT across the UK sovereign debt issuance lifecycle; and (ii) support the growth of UK-based DLT infrastructure and its adoption in financial markets. To meet these aims, the PMEN outlined an initial set of designs, including that DIGIT will be digitally native, short-dated, issued on a platform within the Digital Securities Sandbox (DSS) and separate from the government's debt issuance programme.

Following feedback, a further set of measures have been agreed to be tested as part of the pilot. These include: (i) delivering on-chain settlement (including the cash leg); (ii) facilitating over-the-counter DLT-based trading; (iii) supporting interoperability between traditional and DLT markets to address fragmentation market concerns; and (iv) enhancing transparency in securities ownership and other potential benefits. The UK government also aims to encourage further innovation, such as collateral mobility and DLT-based listings, and will collaborate with the newly established Digital Markets Champion, created under the Wholesale Financial Markets Digital Strategy to develop a cross-sectoral strategy. Further procurement details are expected over the summer, with supplier appointments anticipated by year-end.

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