Deutsche Boerse AG and Commerzbank said on Wednesday they collaborated to test the use of blockchain technology for automating the securities settlement process.
The German banks said their prototype transaction included executing a legally binding settlement of a repo trade using a distributed ledger, the same technology that underpins cryptocurrencies like Bitcoin.
After testing a blockchain-based network prototype to examine the interactions between the systems, the two said they have concluded that distributed ledgers can be used for a payment and securities settlement system as part of a joint proof of concept.
Blockchain technology provides a better settlement process based on a ‘delivery versus payment’ principle. The previous prototypes showed that tapping into this technology would not only reduce the cost of securities transactions but also support financial system resiliency, especially in periods of stress, through faster settlement times and reduced settlement risk. Other benefits, according to the lenders’ joint statement, also include the immediate and simultaneous transfer of assets, settling transactions in real time, as well as reducing counterparty risks and the capital costs.
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Part of a broader trend
Last month, the operator of the Swiss Stock Exchange, SIX Group, said it would launch its new blockchain-powered exchange, dubbed SIX Digital Exchange (SDX), in the second half of 2019.
Although SIX will be the first leading marketplace to offer such a regulated environment for digital assets, many exchanges are also working on similar projects. Last year, German stock exchange operator Deutsche Boerse has set up a unit focused on blockchain and crypto assets to explore the technology for various use cases.
Commenting on this, Michael F. Spitz, CEO of the R&D unit at Commerzbank Group, said: “In past pilots we have focused on new issue projects; with the transaction between Deutsche Boerse and Commerzbank we were now for the first time able to convert existing securities into digital tokens. We are delighted to support the transaction as a platform operator and, together with Deutsche Boerse, to have reached such an important milestone in the adaptation of this future technology for the capital market.”
“The development of different blockchain applications and setting new standards is a high priority for Deutsche Boerse Group, and we will push ahead with this process in close exchange with partners, supervisory authorities and central banks,” added Jens Hachmeister, Head of DLT, Crypto Assets and New Market Structures at Deutsche Boerse.