Commerzbank and Deutsche Bourse have successfully used distributed ledger technology to execute a legally binding settlement of a repo transaction.
The prototype transaction based on delivery versus payment was executed as part of a joint proof of concept examining the possible use of blockchain technology in securities settlement.
For the transaction, digital tokens were generated for both commercial bank money and securities which were exchanged over a DLT platform operated by Commerzbank.
Michael Spitz, CEO of main incubator, the R&D unit of the Commerzbank Group, says: "In past pilots we have focused on new issue projects; with the transaction between Deutsche Bourse and Commerzbank we were now for the first time able to convert existing securities into digital tokens."
Deutsche Bourse has been actively exploring potential applications of distributed ledgers and implications of crypto-assets, including co-operation with international central securities depositories on the use of distributed ledgers and smart contracts for mobilising scarce collateral, as well as the joint development of a functional prototype for the blockchain technology-based settlement of securities with Deutsche Bundesbank.
In January, the German exchange increased its stake in HQLAx, the liquidity and collateral management outfit with which it is building a blockchain-based front-to-back operating model for securities lending.
Of the latest advance, Jens Hachmeister, head of DLT, crypto assets and new market structures, says: “The successful execution as part of the joint project motivates us to explore the efficiency of distributed ledger technology further. Our particular focus here is on the integrated payment function - cash on ledger - which we have successfully demonstrated. The development of different blockchain applications and setting new standards is a high priority for Deutsche Börse Group, and we will push ahead with this process in close exchange with partners, supervisory authorities and central banks.”
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