Today Commerzbank announced a successful Proof of Concept (PoC) transaction that involved tokenizing both cash and securities for a repo transaction. The simultaneous exchange of cash tokens for securities tokens enabled “delivery versus payment” or instant settlement.
The PoC involved a repo transaction where typically banks that require short term cash, borrow it by selling securities which act as collateral and agree to repurchase them in the near future. In the PoC Commerzbank sold securities to Deutsche Börse which provided the cash. Two weeks ago Commerzbank executed another blockchain money market transaction with Continental and Siemens.
“In past pilots we have focused on new issue projects,” said Michael F. Spitz, CEO of main incubator, the R&D unit of the Commerzbank Group. “With the transaction between Deutsche Börse and Commerzbank we were now for the first time able to convert existing securities into digital tokens.”
The security involved was a EUR 10 million public note of KfW Bank Group.
Delivery versus payment removes counterparty payment risk because the transfer of cash is immediate. Because there’s no delay in a payment clearing, the execution is quicker. The net effect is cost reduction.
“Our particular focus here is on the integrated payment function – cash on ledger – which we have successfully demonstrated,” said Jens Hachmeister, Head of DLT, Crypto Assets and New Market Structures at Deutsche Börse. “The development of different blockchain applications and setting new standards is a high priority for Deutsche Börse Group, and we will push ahead with this process in close exchange with partners, supervisory authorities and central banks.”
R3’s Corda technology was used in the PoC. Commerzbank has also previously run a foreign exchange pilot also on Corda, and it is a member of the Marco Polo trade finance consortium which uses R3’s technology. Deutsche Börse experiments with different technologies but is a shareholder in HQLAX the Corda-based securities lending platform.