Deutsche Börse, Swisscom Settle Tokenized Shares Using Blockchain
Blockchain

Deutsche Börse, Swisscom Settle Tokenized Shares Using Blockchain

On November 19th 2019, Swisscom announced a successful proof of concept involving Deutsche Börse, Falcon Private Bank, Vontobel, and Zürcher Kantonalbank. The group collaborated to jointly settle tokenized securities using Distributed Ledger Technology (DLT).


How Deutsche Börse and Swisscom Settled Securities via DLT

DLT can bring significant benefits when it comes to post-trade services. Deutsche Börse, Swisscom, and their partners say these benefits were just demonstrated through their proof of concept.

Here’s how it worked: the share registry of an actual Swiss company was digitized. The conglomerate leveraged daura — a start-up focused on the digitization of small and medium-sized enterprises (SMEs) — for the digitization process. Once this was complete, the shares were then tokenized.

To allow for the execution of a delivery versus payment transaction powered by DLT, money was made available through cash tokens. These tokens were provided by Deutsche Börse in Swiss Francs via Eurex Clearing, its subsidiary. Money was then deposited as collateral in the Swiss National Bank. While securities transactions took place, the banks served as counterparties and exchanged security tokens against the cash tokens utilizing DLT.

Two different protocols were used for processing the cash and security tokens: Corda and Hyperledger Fabric. The parties used cross chain secure settlement to ensure no one had to make an advanced payment throughout the settlement process.

While both Deutsche Börse and Swisscom collaborated to develop the IT architecture, Swisscom hosted the systems. Custodigit created a solution for the custody and management of assets. A number of law firms were also involved to provide the necessary legal framework.

According to Johs Höhener, Head of FinTech at Swisscom,

“DLT has the potential to reach a new level of speed and efficiency in the financial services sector. In order to maintain Switzerland’s leading position in digital assets, cooperation and new platforms are needed. This proof of concept is an excellent example of successful collaboration and innovative strength across company boundaries.”

Jens Hacmeister, Head of New Markets at Deutsche Börse Group said,

“It is of strategic importance for us to further develop the possibilities for settlement of securities transactions using DLT. This brings us one step closer to our goal of enabling the financial services industry in Germany and in Switzerland to efficiently use the potential of this new technology.”

The Growing Application of Security Tokens and DLT in Finance

DLT is seeing a rapid rate of integration across various aspects of traditional finance. Large investment giants to include JPMorgan and Fidelity have seemed to move beyond experimentation and are getting more than their feet wet when it comes to blockchain.

Paxos, who recently received a no-action letter from the SEC, is also gearing up to settle equities using blockchain technology. Yet beyond settlement, security tokens have been leveraged by a number of startups to compliantly raise capital. The nascent industry has raised nearly $1 billion so far, with implementation in assets to include equity, real estate, investment funds, and even fine art.

There are even a number of reports suggesting a transition to blockchain-powered currencies by a majority of the world’s central banks is simply a matter of time.

What do you think about Deutsche Börse and Swisscom collaborating to settle tokenized securities using DLT? Which areas of traditional finance do you see blockchain technology making the most significant impact? We want to know what you think in the comments section below.


Image courtesy of NewsBeezer.

November 21, 2019

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Tim Fries Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions (IoT).