Digitally native securities: from concept to execution

Insights from Citigroup on its landmark issuance on Euro MTF

In light of Citi’s recent issuance of its first digitally native security, listed on LuxSE's Euro MTF, we sat down with Citi Country Officer & Banking Head, Luxembourg Head of Securities Services Eduardo Gramuglia Pallavicino, GMI Equity Structuring Vice President Roksolana Dushynska and Global Head of Digital Assets Haiping Choo to discuss the significance of this milestone, the role of Luxembourg in advancing digital capital markets, and what’s next for digitally native securities.

This issuance marks a first for the wealth management industry. What does this milestone signal for the broader adoption of digitally native securities?

Eduardo Gramuglia Pallavicino: Luxembourg has consistently fostered an environment conducive to financial innovation. This landmark issuance of a digitally native structured note on Euroclear’s Digital Financial Market Infrastructure (D-FMI) Distributed Ledger Technology (DLT) platform underscores Luxembourg's pivotal role in accelerating the digital transformation of global financial markets and Citi’s commitment to pioneering next-generation solutions within a progressive regulatory landscape.

The issuance is considered a pioneering step, demonstrating the practical application of DLT to deliver traditional structured products more efficiently to wealth management clients, highlighting Citi's role in leading digital transformation within the financial sector.

The primary purpose is to leverage DLT for improved efficiency, transparency, and innovation and represents a concrete advancement in Citi's broader digital asset strategy, which includes developing a unified technology framework for various digital asset solutions. This successful issuance validates the seamless integration of DLT into regulated financial markets and demonstrates that DLT can be used for complex financial instruments like structured notes under established legal frameworks (e.g., English Law), paving the way for wider acceptance. It is a strong indicator of accelerated digital transformation across the financial industry and shows that major financial institutions are actively moving beyond pilot programs to implement DLT-based solutions in live, client-facing scenarios. The success of this issuance suggests new possibilities for tokenisation and digitally native solutions across various asset classes beyond structured notes, including private markets, as Citi is actively exploring. In summary, Citi's groundbreaking issuance of the first digitally native structured note in wealth management, leveraging DLT for enhanced efficiency and transparency, signifies a pivotal moment for the broader adoption of digital securities, heralding a future where blockchain technology drives significant financial transformation and the emergence of new digital financial products.

Why did you decide to issue a structured product rather than a conventional bond for this first digitally native issuance?

Roksolana Dushynska: Citi has been actively involved in digitally native note (DNNs) transactions, previously acting as a dealer and paying agent for several third-party DNNs issued on Euroclear’s D-FMI platform. This issuance, however, was different in that it represented the issuance of a structured note and was unique for three key reasons. First, it was the inaugural issuance of a structured product on Euroclear’s digital platform, the D-FMI, which was a landmark moment for the industry. Second, it marked Citi's own debut as an issuer of a digitally native note. We evolved from roles in third party deals to leading our own issuance, which was a significant step for the firm. Finally—and this is what I think is most exciting for the future—this was the first time the wealth management industry was brought into a digitally native issuance. All previous deals were institutional. While those trades are large, the wealth channel represents a higher frequency of transactions. Ultimately, if the D-FMI becomes the new standard, it will create significant efficiencies for a much broader set of our clients.

What were the key factors behind Citi’s decision to list its inaugural digitally native structured product on LuxSE?

Eduardo Gramuglia Pallavicino: Being a centre of financial innovation in Europe, the decision to list Citi’s inaugural digitally native structured products on the Luxembourg Stock Exchange (LuxSE) was rooted in a strategic vision to capitalise on a forward-thinking regulatory environment and drive efficiency in capital markets. LuxSE has distinguished itself as a leader in digital capital markets, and in October 2023, it became the first exchange in the European Union to admit a financial instrument issued using DLT to trade on its regulated market. Its pioneering approach makes it an attractive and established venue for innovative digital listings. Additionally, Luxembourg is actively developing its legal framework to support digital securities across various asset types and is preparing to license a new DLT-based Central Securities Depository (CSD). This comprehensive approach provides a robust ecosystem for the issuance and trading of digital securities. This underscores the financial industry's accelerating move towards the digitalisation of assets, driven by regulatory clarity, operational efficiencies, and growing institutional demand, with LuxSE emerging as a key global hub for this transformation. As we continue to drive digital assets efforts, Citi is focused on the interoperability of money across internal and external networks, as well as regulated instruments across various types of issuers.

What practical considerations or lessons would you share with issuers exploring digitally native bonds or structured products for the first time?

Haiping Choo: With digitally native issuances, corporates or issuers are not required to change their established processes. A key differentiator is that the integration effort sits primarily with the involved agents and bookrunners. Once completed, it can be leveraged repeatedly across transactions without incremental operational complexities. As they reap the benefits of faster settlements, streamlined processes and improved distribution, issuers will still need to ensure coordination across the full lifecycle (from issuer, dealer, paying agent and platform) for successful outcomes. Issuers can also benefit from broader use cases such as improved eligibility for collateral frameworks and Eurosystem refinancing can enhance the attractiveness of the instrument. At the same time, they will need to manage evolving regulatory frameworks and new operational risks from DLT dependencies. Most successful approaches have started small, partnering with established FMIs, and scaling only where there is proven client demand and efficiency gains.

How has investor interest and market engagement evolved around digitally native issuances compared with traditional structured products?

Roksolana Dushynska: Clients are always thinking of ways to innovate. Sometimes it's about the product itself, like a new payoff, but in this case, it was about improving the underlying process - creating a more modern and efficient way to settle the note.  While we were in the early stages of our Structured DNN project, a client asked us about our plans for digitally native issuance. It wasn't a formal request, but more of a 'what if' conversation about the future. That inquiry was really encouraging. It showed us that our clients are just as forward-thinking as we are and that we were on the right track. It's rewarding to work on innovations that you know will resonate with clients, and we're committed to staying at the forefront of market innovation.

Beyond efficiency, the value proposition extends to a number of strategic benefits for the ecosystem of issuers and investors. These include strengthening market visibility and brand positioning, as participation in digital or enhanced issuance formats signals innovation and leadership to investors. It supports deeper investor engagement, enabling richer dialogue and greater awareness across the investor base as digital innovation brings greater transparency between capital and investors.

What’s next from Citi in the DLT space?

Haiping Choo: As a driver of digital asset innovation, we are continuing to modernise how value moves – making it faster, more flexible and more connected – while keeping our solutions anchored in a trusted and regulated system. Our response to the growth and adoption of digital assets has been to lead on infrastructure by modernising payment rails, moving tokenised deposits 24/7, enhancing collateral mobility, connecting to new and relevant digital ecosystems and building capabilities aligned with where the commercial ecosystem is going. We recently introduced Digital Depositary Receipts on private shares for improved accessibility to private market assets, exemplifying how we continue to enable access to opportunities in capital markets through digital innovation. Across the firm, our various businesses are working closely together as we make advancements in areas including tokenised distribution, collateral mobility and funding capabilities ensuring end-to-end integration and applicability across the firm for our clients globally.

Citi’s focus in Markets is moving from experimentation to scaled deployment of DLT in core workflows. For tokenised distribution, the emphasis is on expanding digital issuance where there is clear client demand and a strong use case. In parallel, another priority is collateral mobility - building infrastructure to enable real-time, cross-venue movement of tokenised assets to improve capital efficiency and funding outcomes. This is being developed in coordination with other parts of the franchise, including Services, to ensure end-to-end integration. Overall, the focus is on embedding DLT into existing Markets flows where it delivers tangible efficiency gains, rather than treating it as a standalone innovation.