Blockchain Settlement Trial Deemed A Success With German Banks
Blockchain technology has been making its way through the fintech world, but most banks have to complete trials to see exactly how it would function with their needs. Recently, Deutsche Bank and Commerzbank decided to trial the blockchain with a prototype transaction. As of Wednesday, this transaction has been successfully completed.
Based on reports from the banks, the transaction involved a repo trade, which was performed on a distributed ledger for a legally-binding settlement. After the testing of the prototype took place, the two banks have decided that blockchain serves their needs in the payment and securities settlement system, which will be in conjunction with a proof-of-concept algorithm.
The settlement processes offered with blockchain technology is significantly better with the “delivery versus payment” principle. The prototypes involved demonstrate that blockchain reduces the fees associated with securities transactions and helps with the resiliency of the financial system. One of the most effective times when the financial system benefits is during types of stress, considering the settlement times and risk are both reduced. The trial also revealed that the use of blockchain ensured fast transfers, real-time settlements, reduced counterparty risks, and lowered capital costs.
SIX Group, the operator for the Swiss Stock Exchange, announced last month that they intend to launch the SIX Digital Exchange with blockchain technology by the end of 2019. At this point, SIX would end up being the first marketplace that offers a regulated place for digital assets, there are several other exchanges that are working to follow SIX’s lead. Deutsche Boerse in Germany has already established a unit that will explore use cases that blockchain technology and cryptocurrency would thrive in.
CEO Michael F. Spitz of the R&D unit of Commerzbank Group, commented on the previous pilots, saying that the new transaction between the two banks was the first time that they could convert the securities into the applicable tokens. He called the event an “important milestone” that will help to adapt blockchain for the capital market.
Jens Hachmeister, the Head of DLT, Crypto Assets, and New Market Structures with the company, added,
“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.”