Commerzbank and Deutsche Börse complete DLT 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. DLT was then used to execute the simultaneous swap of the tokens as a legally binding transaction.
Deutsche Börse acted as the cash provider, Commerzbank as the borrower and main incubator, while Commerzbank’s research and development unit, acted as the blockchain platform operator.
“Our particular focus here is on the integrated payment function – cash on ledger – which we have successfully demonstrated,” states Jens Hachmeister, head of DLT, crypto assets and new market structures at Deutsche Börse.
The transaction showed that the movement of tokenised securities and cash on blockchain based on a “delivery versus payment” principle is feasible.
According to the Germanic duo, DLT reduces counterparty risk and the corresponding reduction of capital costs. This technology also permits the direct and transparent involvement of regulators and oversight authorities.
The repo transaction is based on a public note of KfW Bank amounting to €10 million and a seven-day term with a negative interest rate of -0.5%.
Repos are collateralised money market instruments, which banks use to cover their short-term liquidity requirement by depositing securities.
The next steps are linked closely to the creation of underlying legal conditions which are a requirement for a binding assessment of contractual relationships.
Both the bank and the exchange have shown an interest in DLT before.
Recently, Commerzbank completed a money market security test transaction in a blockchain pilot with Continental and Siemens.
In October last year, Deutsche Bundesbank and Deutsche Börse completed the performance tests of their jointly specified prototypes for securities settlement based on blockchain technology.