German financial services company Commerzbank and securities marketplace Deutsche Boerse have completed a proof-of-concept for a legally binding repo transaction using distributed ledger technology.
A repo transaction is commonly used for short-term borrowing, and allows dealers to sell securities to investors - often for as short a time as overnight - and repurchase them the following day, or as otherwise determined.
For the DLT-enabled PoC, the repo transaction was based on a 10 million euro bond issued by KfW Bankengruppe, for a term of seven days at a negative interest rate of -0.5%. As Cointelegraph Deutschland reports, to settle the transaction, Commerzbank and Deutsche Boerse generated digital tokens for both commercial bank money and securities.
While Commerzbank's R&D unit "Main Incubator" developed the DLT platform, the full scope of the technology used for the DLT-powered repo transaction PoC - as well as its underlying legal concept - was reportedly developed jointly by the two partners.
As a Commerzbank press release notes, the use of DLT to enable the legally compliant, efficient and transparent settlement of tokenized securities and cash tokens offers distinct advantages over existing legacy systems.
"In past [DLT] pilots we have focused on new issue projects; with the transaction between Deutsche Boerse and Commerzbank we were now for the first time able to convert existing securities into digital tokens."
As the press release outlines, banks often use repo transactions as secured money market instruments in order to cover their "Short-term liquidity needs by depositing securities."
As Cointelegraph has reported, Deutsche Boerse recently revealed that it is making significant progress with its blockchain-powered securities lending platform, co-developed with Luxembourg-based blockchain liquidity management platform, HQLAx.
To date, six banks have reportedly confirmed their plan to join the platform, which uses enterprise blockchain consortium R3's Corda platform as its base.
Last month, Commerbank conducted a pilot for money market security transaction using a Corda-based platform, in partnership with major technology firms Continental and Siemens.
Deutsche Boerse, Commerzbank Complete Blockchain PoC for Legally Binding Repo Transaction
Published on Mar 6, 2019
by Cointele | Published on Coinage
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