DZ Bank and BayernLB have traded an over-the-counter interest rate derivative in the form of a digital smart derivative contract, with the resulting payments settled daily via Deutsche Börse.
The partners implemented the digital OTC derivative using DLT and cloud technology, with a smart derivative contract independently digitising the contract content and processed its terms.
DZ Bank and BayernLB acted as trading partners, with Deutsche Börse's CCP Eurex Clearing acting as a neutral account manager for exposures from the non-cleared OTC transaction.
The firms say that using smart derivative contracts not only simplifies and accelerates the complex settlement processes of OTC derivatives, it also creates an economic advantage by reducing counterparty risks and procedural uncertainties.
Jens Hachmeister, head, issuance and new digital markets, Deutsche Börse, says: “DLT-based solutions are suitable for significantly improving the security and efficiency of products and processes on the capital market - especially in the off-exchange area.
"Smart derivative contracts and automated payment settlement via DLT are promising use cases here."