Commerzbank, KfW and MEAG simulate blockchain-based security transaction
The security was sold to MEAG, and settled without a paying agent or a clearing system, the three parties say. This pilot transaction comprised a €100,000 issuance volume with a five-day term.
In parallel to issuance and settlement, key transaction elements were replicated and simulated by means of distributed ledger technology (DLT), using the R3 Corda platform. For this purpose, the standard number of required intermediaries was reduced, this allowed for an immediate posting. In parallel, a real-time replication of the transaction was done using DLT.
Normally, securities settlement and related payments require two days, due to the restrictions imposed by clearing systems that necessitate deferred timing, the participants explain.
This pilot transaction, using a money market instrument, was realised via an extension of this application, which provides additional functionality. For instance, individual transaction steps can be made transparent through a real-time visualisation, which also provides a basis for a regulatory reporting.
Given their short terms and simple structures, money-market instruments qualify to issuance and trading using DLT, the three companies believe.
With this pilot transaction, Commerzbank, KfW and MEAG have now simultaneously simulated key elements of a real transaction with several counterparties using blockchain technology.
Looking to the future, the option of immediate securities settlement may offer significant benefits, the participants say. These include more streamlined transaction processes, efficiency gains, settlement risk reduction, capital relief, and a marked reduction in capital and liquidity costs.
However, to fully realise these efficiency gains it will require further technical, regulatory and legal adjustments, the institutions warn.
The development of the market readiness of the new platform will be gradually progressed over the coming years, they add.