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Deutsche Borse Utilizes Blockchain to Create a Securities Settlement Solution

November 20, 2019
Ross Peili


Deutsche Borse Utilizes Blockchain to Create a Securities Settlement Solution

Deutsche Boerse and Swisscom, alongside a group of partners, are testing the benefits of settling securities transactions using distributed ledger technology (DLT). 

More specifically blockchain solutions as provided by R3’s Corda, and the Linux Foundation x IBM hosted Hyperledger Fabric, will be tested among Deutsche Boerse, Swisscom, Falcon Private Bank, and Zurcher Kantonalbank, according to a recent joint announcement made by the German and Swiss financial institutions.

The concept

The involved parties said that this was a test and now a demonstration of how security transactions in the form of SME shares could be settled instantly and securely in the near future.  

More specifically, an operational Swiss-startup called daura, was tokenized in the combined blockchain platform, then Deutsche Boerse made the digital shares of the company available in ‘cash tokens’ pegged to the Swiss Franc through Deutsche Boerse’s subsidiary Eurex Clearing.   

Finally, the tokens were deposited as collateral in Eurex Clearing’s central bank account in the Swiss National Bank, while a process dubbed as “cross-chain secure settlement” was followed to make sure that none of the parties involved had to make any advance payments during the settlement process. 

“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”, said Jens Hachmeister, Head of New Markets, Deutsche Börse Group.

More banks involved in the project acted as counterparties basically exchanging security tokens for cash tokens using the private blockchain network, which was again, provided by both ‘cream-level’ private DLT-brokers worldwide simultaneously.  

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While Corda and Hyperledger don’t need a lot of introductions, Deutsche Boerse and Swisscom offered their expertise and contributed to the development of the hardware and software infrastructure as well, showcasing that it would take more than a top-shelf blockchain provider to create a solid banking IT network that central banks and regulators could trust.  

The Swiss startup daura, subject to the experiment was also not attending empty-handed, offering a solution for the digital share registry process, while other parties involved in the architecture of the network, include Custodigit who provided the project with a holistic solution for the custody and management of the newly generated digital assets. 

The future of banking is unavoidably digital-only

Whether traditional banking institutions are up to dip their fingers into public cryptocurrencies or not, blockchain technology seems to be very appealing to most central banks, and government organizations. 

It is true that government-backed cryptos could emerge and take over the scene in the future, but it seems that the underlying technology behind Bitcoin is more important for traditional power-brokers in numerous ways.

The settlement of securities transactions is just one concept possible thanks to distributed ledger network architecture, but there is a huge sack of possibilities we haven’t even bother opening so far when it comes to blockchain technology.

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