Germany's Commerzbank has hailed the potential of blokchain technology for money market trades, having successfully replicated a EUR100,000 Euro Commercial Paper transaction with a limited number of trading partners.
The security, comprising a €100,000 issuance volume with a five-day term, was sold to asset management group MEAG, and settled without a paying agent or a clearing system.
The pilot transaction is one of the outcomes of a two-year exploration of the potential of smart contracts and distibruted ledger technology conducted with R3's Corda platform.
Roman Schmidt, corporate finance director at Commerzbank, says the option of immediate securities settlement may offer significant benefits in terms of freeing up capital and reducing the number of intermediaries required to process a transaction.
"The pilot transaction has demonstrated that the issuing as well as the trading of securities can be simulated in real time via blockchain technology," he says. "Transforming securities transactions into digital issues may open up significant potential for efficiency gains."
Nonetheless, it will take another few years before the platform can be decreed "market ready", he adds, with adjustments to the regulatory and legal framework and reporting interfaces all needing a makeover to accommodate the technology.