Last year, the Deutsche Börse unveiled the launch of D7, a digital securities post-trade platform. It is now taking its second step by issuing digitally native securities in the fourth quarter. While the latest phase uses smart contracts, the securities are not yet blockchain-based, which is planned for a third phase.
“We are moving away from various isolated platforms towards our vision of one common digital financial ecosystem,” said Jens Hachmeister, Deutsche Börse Managing Director of Issuer Services & New Digital Markets.
The key aims of the solution are to enable same day stock issuance and straight through processing.
A spokesperson told Ledger Insights that digital securities issuance would be available for production during the current year’s fourth quarter as the stock exchange has completed issuance tests with its pilot customers. When it unveiled D7 last year, those customers included BNP Paribas, Citi, DekaBank, Deutsche Bank, dwpbank, DZ Bank, Goldman Sachs, Raiffeisen Bank International and Vontobel.
So far, the securities are issued on a cloud-based central registry from Deutsche Börse-owned Clearstream, using Digital Asset’s DAML smart contract language for the workflow. Digital Assets’ CEO and co-founder Yuval Rooz told Ledger Insights, “The ability to model the entire lifecycle of an asset as a smart contract at this level of complexity is something we’re going to see more of across the industry. It’s great to see Deutsche Börse leading the way with D7.”
In mid-2021, Germany passed its eWpG legislation that supports digitally native electronic securities that don’t have physical certificates. They can either be centrally registered securities, such as the current iteration, or crypto securities if they are blockchain-based. The Deutsche Börse sees this change and Luxembourg’s Blockchain Act as crucial drivers of the security industry’s evolution. This progress on the legal front, alongside EU’s DLT Pilot regime, which comes into force in March 2023, will allow the stock exchange to internationalize the D7 platform.
Next step: blockchain-based securities
The stock exchange refers to the third D7 iteration as DeNet (Decentral Network), which helps to integrate existing and newer technologies such as distributed ledger (DLT). It said it plans to support “multiple blockchains and protocols,” with VMware Blockchain and R3’s Corda mentioned last year.
While DeNet will initially focus on enterprise blockchains and electronic securities, the stock exchange has previously stated it plans to support other asset classes and payment solutions in the future.
Deutsche Börse has been active in the blockchain sphere for years. It is a major investor and partner of HQLAX, the collateral management platform. Just over a year ago, it spent more than $100 million acquiring a majority stake in cryptocurrency exchange Crypto Finance. And its XETRA exchange has long supported crypto-based ETPs with ETNs for twenty individual coins plus baskets. It has also invested in digital asset firm 360x and AirCarbon Exchange.