Commerzbank, Deutsche Börse and MEAG use blockchain for settlement process

Project saw cash and securities tokens swapped for settlement using DLT, and tokenised cash used as collateral for margin requirements.

Commerzbank, Deutsche Börse and asset manager MEAG have completed settlement of a secondary market transaction via tokens using blockchain technology.

All three partners said the move marks a further step in examining the potential and scope of distributed ledger technology (DLT) in the post-trade space, reflecting a delivery-versus-payment transaction and the transfer of tokenised cash.

Digital tokens generated using bank money and securities were simultaneously swapped as final and binding settlement using DLT, with Commerzbank also using tokenised cash credit as coverage of margin requirements at Eurex Clearing.

“This is an important joint effort in further exploring the potential of distributed ledger technology for the financial services industry. By combining multiple use cases within these transactions, we have broadened the scope of applications where the market can benefit from possible standards in this new technology. Our goal is to foster our role as financial infrastructure provider of choice,” Jens Hachmeister, head of new markets at Deutsche Börse Group, commented.

The transaction saw Eurex act as the tokeniser of cash, MEAG as the buyer of securities, and Commerzbank as the seller and custodian of the securities tokens. Commerzbank’s research and development unit also provided the blockchain platform.

“By reducing the need for intermediaries, the transaction process of securities is going to accelerate furthermore. The involvement of tokens representing securities and money will facilitate network efficiencies and build a foundation for the creation of standards. This is important for the buy side as standards lead to broader market acceptance and thus create liquidity on DLT platforms in general,” Dr Frank Wellhöfer, member of the board of management at MEAG, added.

The concept of the transaction has been shared regulatory and oversight authorities, with further products based on the test subject to approval and compliance with requirements and processes. Commerzbank and Deutsche Börse completed a legally binding repo transaction under similar conditions earlier this year, as part of the firms’ ongoing work with blockchain and DLT.