Today Metzler Asset Management (MAM) announced German tokenized fund issuance, so-called crypto funds. Despite the name, this is not a cryptocurrency. Instead, the asset manager issued the tokenized fund shares in compliance with Germany’s ‘crypto’ securities laws which waive the requirement for a central securities depositary (CSD). That’s only if a DLT or blockchain is used to register ownership of bearer fund shares.
For this three month pilot, Metzler partnered with fundsonchain and Cashlink, which has been involved in many of Germany’s crypto bond issuances.
Crypto fund enabling regulations
Stepping back, Germany introduced two pieces of legislation supporting the use of blockchain instead of a CSD. The Electronic Securities Act (eWpG) allows for a centralized ledger or a decentralized (“crypto”) one for bearer bonds. Earlier this year, Siemens issued a €60 million bond on a public blockchain in compliance with this law. This means that investors can transfer bonds peer-to-peer.
Additionally, the Crypto Fund Units (KryptoFAV) regulation supports the same eWpG rules for certain types of German tokenized funds. The regulation only applies to “common” fund shares but not to investment funds that use a corporate structure such as an LLC.
The Metzler crypto fund
The role of Cashlink is to manage the crypto securities register, where it has extensive experience. Late last year it was involved in a below-the-radar note issuance by Deutsche Bank. Cashlink has acted as registrar for 44% of the 52 Crypto bond issuances.
Fundsonchain provides the end-to-end processing of tokenized fund units and this is fundsonchain’s first issuance. The startup’s market user group includes the likes of Allianz Global Investors, BNP Paribas Securities Services and LBBW.
Meanwhile, Metzler is running a three month pilot, so investment in the fund is not open to the public. While MAM issued the fund shares, Bankhaus Metzler is the investor and the custodian.
“At the Digital Assets Office (DAO) we see ourselves as developers of innovative solutions to advance the digital transformation of the financial industry in Germany – always consistently with the needs of our customers in mind,” said Shahrok Shedari from DAO at Bankhaus Metzler.
We asked which blockchain was used for the issuance but didn’t receive a response in time for publication.
The conventional fund distribution process involves multiple intermediaries. Using the KryptoFAV rules means the issuance and subsequent administration can be faster and cheaper. In turn, this allows smaller fund sizes, or the investors can commit smaller amounts, the so-called fractionalization of funds.
The Deutsche Börse Group is also active in this space. Its subsidiary Clearstream has already supported several bond issuances under the eWpG law using its D7 blockchain-based infrastructure. So far, it has issued the bonds using a “centralized register”, with plans to issue using a decentralized one soon. Additionally, a month ago, Clearstream acquired FundsDLT where it was already an investor alongside the Luxembourg Stock Exchange and the asset management arms of Credit Suisse and Natixis.
Interest is ramping up elsewhere. In the UK, abrdn recently issued its first tokenized fund units. And Schroders is exploring tokenized funds with Calastone as part of Singapore sandbox trials.
