The Boerse Stuttgart Group has shared its testing plans as part of the second wave of the ECB and Eurosystem’s wholesale DLT trials for central bank money settlement. The stock exchange group has developed a blockchain-based settlement solution. It plans to test the settlement of tokenized securities using central bank euros by linking with the Bundesbank’s trigger solution. While some of the ECB trials use real money, it will be simulated in this case.
Partners in the trial include Germany’s four largest banks, Deutsche Bank, Commerzbank, DZ Bank and LBBW. Bankhaus Metzler and V-Bank are also involved. The banks will act as trading and settlement partners and will directly connect to the blockchain network.
One of the key ECB objectives of the trials is to test the atomic settlement of securities, otherwise known as delivery versus payment. By eliminating counterparty risks, the tokenized securities are transferred directly to the banks. Hence, there’s no central securities depository involvement.
“We are a pioneer in digital assets, and we are convinced of the benefits of blockchain and tokenization for the European securities markets,” said Matthias Voelkel, CEO of Boerse Stuttgart Group.
Many claim to be pioneers, but the Boerse Stuttgart is. It launched its first cryptocurrency app, BISON, in early 2019. Shortly afterward it created a joint venture, Boerse Stuttgart Digital Exchange, with Axel Springer and finanzen.net. Japan’s SBI is also an investor. This March DZ Bank announced that Boerse Stuttgart would be the crypto partner for a retail crypto service that some of its 737 community bank partners plan to deploy.
Boerse Stuttgart developed one of the earliest digital asset custody solutions, blocknox, which morphed into Boerse Stuttgart Digital Custody. Its custody arm and broker, EUWAX, are both participating in the ECB DLT trials.
Swiss tokenized securities plans
On the digital securities front, the stock exchange also revealed plans for Swiss-based BX Digital. Aiming to launch later in the year, it will trade and settle tokenized securities. It also uses the self-developed settlement solution, which currently uses Ethereum technology, with plans to support other blockchains in future. However, there is some competition in Switzerland in the form of the SIX Digital Exchange (SDX), the world’s first regulated tokenized securities exchange.
We asked why it was planning a trading solution in Switzerland before Germany, given Germany’s favorable crypto securities laws. A spokesperson responded that these laws only cover issuance, which means trading and settlement are EU-governed. Hence, the DLT Pilot Regime is the only current path for trading and settlement, and the regime hasn’t proven attractive for incumbents because of volume restrictions. A Deutsche Börse executive compared it to requesting an aircraft carrier to be adapted to land a Cessna.
By contrast, Swiss law covers the full spectrum and is ‘very favorable to innovation’.
Update: After receiving a response to our questions, we added details regarding the simulation, the blockchain technology used, and why it’s launching a secondary market in Switzerland first.
