The City Using Blockchain to Bring Munis to Investors

In today's muni moment, JP Morgan is using blockchain technology to bring municipal bonds to investors and the city of Quincy in Massachusetts is taking advantage of this. Joining us for more now is Eric Mason. He is the Chief Financial Officer for the City of Quincy in Massachusetts. Eric, it is so good to speak with you. Your city is a pioneer here selling $10 million of muni. We're talking about seven-year tax exempt bonds using JP Morgan's distributed Ledger technology, DLT, you're the 1st to do so in the US We'll get to, you know, why you're selling bonds in a moment, but just explain to us how that changes the process of placing these bonds. Yeah, absolutely. First off, thank you so much for having me on. As a public sector finance professional, it's always excited, exciting we get to be part of a a new technology curve. And you know what this really means for placing any sort of municipal bond in the market is it allows for a much more fluid entry, it allows for greater secondary market access, it allows for a quicker settlement and it allows for a much more secure platform. And you know one of the longer term goals is allows for the demonetization of debt. So it allows us to not just bring the bond into the market, but open the market up to other potential investors who may not have the traditional amount of liquidity available to say invest through SM as. How did you come up with this, Eric? It was a, it was a long process in discussion. It began about nine months ago with a discussion between our Mayor, Thomas P Koch and current City Council President, Anne Kane. We were looking at what was going on in Europe, particularly with Lagano, Switzerland and how they were able to leverage this technology for quicker settlements and easier access to the market. And kind of one of the selling points was that, you know, if we begin this process, we could one day see, you know, debt be able to be purchased by Quincy residents. So right now Quincy pays $25 million out in interest and it would be nice to keep that in the market. Yeah, absolutely. So you said it started nine months ago. Was the actual selling of the municipal bonds faster because of blockchain? Yeah, the the settlement was much faster when it initially occurred. The nine months was mostly on the regulatory side. We we're we're still municipal bonds. We're boring and we have to stay conforming. So we got to go through a lot of regulations to make sure we are sticking to that. No, we would never call munis boring. We love munis Nikes task exempt. Nice yield we did get. Eric, what do you use the money or what are you going to use the money for? We went old school roads and sidewalks. We thought let's take this new technology and let's do good old fashioned government. Let's pave some roads and run some water lines. I love it. I think every city could could use some shoring up of those that infrastructure. One thing I wanted to mention and and this is something that our reporter on the Bloomberg News side had included in their story, is that once he had a bad experience with a cyber attack in 2021, the city's pension fund was attacked. What happened there and how did that maybe influence your thinking or shape your approach in in using this technology? You know, that's that's a great point. I think we've had our, we had that cyber attack and we had another cyber attack that didn't result in any loss but still, you know, made our ERP inaccessible. The retirement system, I'm a member of the retirement board also, but the retirement system is independent. But any loss in our retirement system is a loss to us because we have to, you know, fund that unfunded liability. And one of the thought processes for this was how can we take every step to make, you know, the city dollar, the taxpayer dollar safer both now and in the future. When we look at the sale of bonds and knowing the, you know, technical hurdles it takes to break blockchains, that's a big surplus. It's a big, you know, it's a big plus to put there saying, hey, on our Ledger, we're going to put an asset that's just very, very difficult to manipulate and a very, very difficult thing to even have enough computing power to to to alter. This is a really dumb question. But did you know who bought them? Like were there new investors who came in that did it that wouldn't have before, like you know, some material difference. Yeah. So we get when we do negotiated debt, we get a lot of interest all the way from SM as to you know, BlackRock and all the big guys, this was directly taken down by JPM. And so we're looking we're you know kind of examining who's going to be the guy in the secondary market who works with JPM and see that transfer. I'm going to tell you the secondary market aspect of this, of my background's in economics, anything to do with trade and exchange. I'm very curious to see how the secondary market works because I think that could really be what suppresses interest rates in the long run with this technology.