The distributed ledger technology was used to carry out a legally binding settlement of a repo transaction.
The prototype transaction based on delivery versus payment was carried out under joint proof of concept to assess the possible use of blockchain technology in securities settlement.
Digital tokens have been generated for both commercial bank money (cash tokens) and securities (securities tokens), as part of the transaction.
Later, the distributed ledger technology has been used to make the simultaneous swap of the tokens as a legally binding transaction.
Deutsche Börse has served as the cash provider, while Commerzbank as the borrower and main incubator and its research and development unit as the blockchain platform operator.
Both entities have developed the technology and underlying legal concept required for the transaction.
Commerzbank Group R&D unit’s main incubator CEO Michael Spitz said: “We are delighted to support the transaction as a platform operator and, together with Deutsche Börse, to have reached such an important milestone in the adaptation of this future technology for the capital market.”
According to Commerzbank, the successful transaction demonstrated that a legally-binding, efficient and transparent movement of tokenised securities and cash on blockchain based on a delivery versus payment principle is feasible.
Distributed ledger technology will facilitate an immediate and simultaneous transfer of assets to settle the transaction in real time. The technology enables the direct and transparent involvement of regulators and oversight authorities.
Commerzbank also noted that the repo transaction is based on a public note of KfW Bank Group amounting to €10m and seven-day term with a negative interest rate of -0.5%.
Repos are collateralised money market instruments, which are used by banks to cover their short-term liquidity requirement by depositing securities.
Deutsche Börse DLT, crypto assets and new market structures head Jens Hachmeister said: “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.”
