Commerzbank, Deutsche Börse Use Blockchain For Repo Transaction Settlement

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Germany's Commerzbank and Deutsche Börse successfully executed a legally binding settlement of a repo transaction using blockchain. The pilot transaction was part of a joint proof-of-concept (PoC) to examine the possibility of using blockchain technology in securities settlement.

The repo transaction was based on a public note of KfW Bank Group amounting to 10 million euros for a term of seven days at a negative interest rate of -0.5%.

Repos are collateralized money market instruments, which banks use to cover their short-term liquidity requirement by depositing securities.

For the transaction, digital tokens were generated for both commercial bank money (cash tokens) and securities (securities tokens). The tokens were then simultaneously swapped as a legally binding transaction using Commerzbank's DLT platform. Deutsche Börse acted as the cash provider and Commerzbank as the borrower.

The conversion of existing securities into digital tokens took place for the first time in this transaction between Deutsche Börse and Commerzbank.

While Commerzbank's research and development unit acted as the blockchain platform operator, the technology used and the underlying legal concept were developed jointly by the partners.

The real-time settlement of the transaction was possible as DLT creates an immediate and simultaneous transfer of assets.

The use of blockchain reduced counterparty risk and the corresponding reduction of capital costs due to the shortened execution time. It also enables supervision of transactions on the blockchain by the regulatory authorities.

In August last year, Deutsche Börse had bought a minority stake in its blockchain solutions partner HQLAx.

Earlier in March, Deutsche Boerse had also partnered with HQLAx to develop a blockchain-based solution for efficient securities settlement using DLT consortium R3's Corda blockchain platform.

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